Asian stocks tumble as AI-driven chip selloff rattles markets

Asian stock markets suffered a severe selloff on Tuesday as growing doubts surrounding artificial intelligence investment triggered heavy selling across the region’s semiconductor industry.

As of approximately 7:35 AM GMT time, South Korea was at the center of the turmoil. The benchmark Kospi had fallen by around 10%, after briefly extending its losses beyond 11%, forcing the Korea Exchange to halt trading for 20 minutes after the index remained more than 8% below Monday’s close.

Japan’s Nikkei 225 dropped more than 4%, while Taiwan’s Taiex lost close to 5% as investors aggressively reduced their exposure to chipmakers and other companies associated with the global AI boom.

China’s Shanghai Composite also traded lower, although its decline was considerably smaller. Hong Kong showed greater resilience, while Australia’s ASX 200 managed to post modest gains, highlighting how heavily the regional selloff was concentrated in technology-driven markets.

South Korea faces a historic rout

South Korea experienced the most dramatic losses because of the unusually large influence that semiconductor companies have over its stock market.

Samsung Electronics and SK Hynix, which together represent a substantial share of the Kospi, both plunged by approximately 13% as investors rushed to unwind positions accumulated during the powerful semiconductor rally earlier this year.

The intensity of the decline first prompted the exchange to activate “sidecar” restrictions that temporarily suspended program trading. As losses deepened, a broader circuit breaker was triggered, halting trading across the entire market.

The measures were designed to slow panic selling and give investors time to reassess conditions. However, the need to activate them demonstrated the scale of the pressure facing one of Asia’s best-performing markets of the past year.

AI optimism turns into valuation anxiety

The immediate trigger was another sharp decline in semiconductor stocks on Wall Street.

Nvidia fell around 5% during Monday’s U.S. session, while other major chipmakers also suffered heavy losses. The selling quickly spread to Asia, where many of the companies most closely linked to memory chips, semiconductor equipment and AI infrastructure are listed.

Investors are increasingly questioning whether the vast sums being committed to artificial intelligence data centers can generate profits quickly enough to justify current market valuations.

Those concerns have intensified as technology companies continue to announce enormous capital spending plans involving advanced processors, memory chips, electricity infrastructure and data-center construction.

Demand for AI hardware remains strong, but the market is no longer treating investment growth alone as sufficient justification for higher share prices. Investors increasingly want evidence that the spending will produce sustainable revenue and meaningful returns.

Chinese competition adds another layer of fear

The selloff was amplified by signs that China is accelerating its efforts to develop a more independent semiconductor industry.

Reports that Chinese manufacturers are beginning domestic production of advanced chipmaking equipment raised concerns about the future competitive position of established suppliers in Japan, South Korea, Taiwan and Europe.

Investors were also digesting the extraordinary stock-market debut of Chinese memory-chip producer ChangXin Memory Technologies, commonly known as CXMT. Its shares surged more than 400% during Monday’s debut, reflecting enormous investor enthusiasm for China’s domestic semiconductor ambitions.

The company’s rapid rise raised concerns that Chinese producers could eventually challenge the dominance of Samsung and SK Hynix in the global memory-chip market.

For investors, the threat is not simply that China could produce more chips. Increased manufacturing capacity could eventually create excess supply, place downward pressure on prices and reduce the exceptional profit margins currently enjoyed by the industry’s largest producers.

Japan and Taiwan caught in the chip rout

Japan’s stock market was dragged lower by companies closely connected to semiconductor manufacturing.

Memory-chip producer Kioxia suffered particularly steep losses, while equipment manufacturers and technology investment companies also declined sharply. Because semiconductor-related companies have played an important role in the Nikkei’s previous rally, their retreat placed heavy pressure on the broader index.

Taiwan faced a similar problem. The island’s stock market is dominated by the semiconductor industry, led by Taiwan Semiconductor Manufacturing Company.

Even relatively moderate declines in TSMC can have an outsized effect on the Taiex because of the company’s enormous index weighting. As the global chip selloff intensified, Taiwan’s broader market therefore suffered one of the largest declines in the region.

Not every Asian market collapsed

The session was not a uniform regional crash.

Australian shares traded modestly higher, benefiting from the country’s smaller exposure to semiconductor companies and the continued decline in oil prices. Lower energy costs can support businesses and consumers in countries that depend heavily on imported fuel.

Hong Kong also performed better than Japan, South Korea and Taiwan, while mainland Chinese losses remained comparatively contained.

That divergence shows that Tuesday’s turmoil was not primarily driven by a sudden collapse in the global economic outlook. Instead, it represented an aggressive reassessment of the AI and semiconductor trade after months of extraordinary gains and increasingly demanding valuations.

 Is the AI bubble beginning to crack?

One day of severe losses does not prove that the AI boom has ended.

Demand for advanced chips remains strong, major technology companies continue to expand their data-center networks and semiconductor manufacturers are still expected to report substantial earnings.

However, the character of the market has clearly changed.

Earlier in the rally, announcements of higher AI spending were generally interpreted as evidence of stronger future demand. Investors are now beginning to view the same spending plans as potential financial risks, particularly when the connection between capital expenditure and eventual profits remains uncertain.

That shift in perception can be extremely important. Markets do not require an actual collapse in AI demand to produce a major correction. They only require investors to become less willing to pay exceptionally high valuations for future growth.

What investors are watching next

Attention will now turn toward upcoming earnings from major U.S. technology companies and the Federal Reserve’s latest monetary-policy decision.

Corporate results will be examined for evidence that artificial intelligence is generating enough revenue to support the industry’s enormous investment plans. Weak guidance, slower cloud growth or further increases in capital expenditure without corresponding profits could deepen the selloff.

The Federal Reserve will also influence sentiment. Any indication that U.S. interest rates could remain elevated—or rise further—would increase the pressure on highly valued technology stocks by reducing the present value investors assign to future earnings.

Tuesday’s collapse therefore represents more than a difficult trading session for Asian equities. It is an early test of whether the semiconductor industry’s exceptional rally can survive a period in which investors are demanding profits, financial discipline and proof that the AI revolution can produce returns matching the extraordinary amounts being invested in it.

[1]: https://www.reuters.com/world/china/global-markets-global-markets-2026-07-28/?utm_source=chatgpt.com "AI anxiety sparks tech rout, broad selloff in Asian markets"