The chip sell off just spread across ALL of Asia.
South Korea's KOSPI is down about 6% and has dropped below 6,000. Japan's Nikkei is down about 2.6%, and MSCI's Asia Pacific index outside Japan is down about 2%, according to Reuters. Not one of the six major Asian indices is green right now. SK hynix is down more than 8% and Samsung about 6.7%, both at their lowest levels since August, according to CNBC. It started on Wall Street, where the Philadelphia Semiconductor Index fell 2.66% after China's CXMT claimed progress on a denser DRAM design.
Brent oil near $106 is adding to the pressure on inflation and interest rates. To be fair, AI chip stocks had a huge run this year, so some of this is just investors taking profits but here's what we are watching next. First, whether chip stocks find a floor in Asia today. Second, the direction of oil prices. Third, $TSM earnings on Thursday, which will be the first real check on AI demand.
One bad day does not change the demand story, but it shows how CROWDED this trade has become.
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South Korea’s KOSPI just opened down another 4.5% and is now down more than 12% over the past five trading days.
And I think there’s a LOT more going on here than investors simply worrying about China’s CXMT. First, you have Samsung and SK Hynix facing growing concerns about additional DRAM competition after CXMT announced progress on its new 4F² architecture, which could potentially make memory production more efficient and put pressure on future DRAM prices.
But that’s only part of the story because something I think investors are overlooking is that Samsung recently completed its massive share buyback program, while SK Hynix is also winding down its repurchases. Together, these programs represented roughly $39 billion in potential buying support, and with that support fading, the market becomes much more vulnerable to foreign investor selling. And here’s another important factor. South Korean regulators have tightened restrictions on single stock leveraged ETFs, increasing minimum deposit requirements and temporarily restricting new listings. This matters because leveraged retail demand helped fuel the enormous rally in Korean equities, and making that exposure harder to access can reduce incremental buying pressure.
Now, combine that with investors taking profits after a massive semiconductor rally, rising oil prices, and broader geopolitical uncertainty, and you can see why selling pressure is accelerating. And remember, memory stocks have rallied because investors are pricing in years of tight supply, strong pricing, and accelerating AI demand. When expectations are already this high, even a relatively small change in the outlook can cause a significant correction, especially when leveraged investors are forced to unwind positions.
Personally, I think the biggest question is whether CXMT can actually produce enough competitive DRAM at scale to materially change global supply. Because according to HSBC’s projections, the DRAM market could remain undersupplied through 2028 even after accounting for additional Chinese production. And with HBM production competing for manufacturing capacity with conventional DRAM, I think investors are seriously underestimating how much memory we’re going to need as hyperscalers continue spending hundreds of billions of dollars building AI infrastructure.
To me, this selloff looks more like a mix of weakening market liquidity, foreign capital outflows, and investors reducing risk than a fundamental deterioration in memory demand. I’m still bullish on Samsung, SK Hynix, and $MU over the long term.
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