A brutal selloff swept through global semiconductor markets on Tuesday, wiping out more than a trillion dollars in combined market value and raising the sharpest questions yet about whether the artificial intelligence spending boom can sustain its own financing structure. The rout began Monday when Nvidia shares fell roughly 5% following a Wall Street Journal report detailing discussions around financing guarantees that could reach as much as $250 billion, layered on top of a separate $350 billion arrangement tied to chip purchases for an OpenAI data center. Investors reacted by reassessing just how much of the AI buildout is being funded through circular deals between chipmakers, cloud providers, and the startups buying their hardware.
The damage was most severe in Asia. South Korea's Kospi index plunged nearly 11%, its steepest one-day drop since the early days of the U.S.-Iran military conflict in March, dragged down by Samsung Electronics and SK Hynix, which together account for close to half the benchmark. Samsung closed 13.4% lower, its worst single session in almost two decades, while SK Hynix fell 14.7%. SK Hynix's U.S.-listed shares, which debuted at $149 earlier this month, closed 7.5% lower and dropped below their IPO price for the first time. Japan's Kioxia Holdings, briefly the country's most valuable listed company last month, slid more than 18%, and Taiwan's MediaTek fell almost 10%.
Compounding the AI-financing anxiety was a fresh competitive threat from China. Reports surfaced that a Chinese state-backed manufacturer has begun mass-producing immersion deep ultraviolet lithography machines, equipment historically dominated by the Netherlands' ASML. The news fueled fears that Chinese memory makers could accelerate domestic chipmaking capacity far faster than previously expected. ASML shares fell more than 8% on the report. Adding to the unease, Chinese memory chipmaker CXMT surged in its Shanghai debut this week, raising $8.6 billion and briefly valuing the company near half of U.S. rival Micron's market capitalization.
In the United States, futures on the Nasdaq 100 dropped roughly 1% ahead of the open as the sector-wide anxiety carried over from overnight trading. The VanEck Semiconductor ETF extended Monday's losses, and chip-equipment and memory names broadly underperformed even as the wider S&P 500 and Dow Jones Industrial Average managed to post gains, helped by a rotation into more economically sensitive sectors. That divergence, with the equal-weighted S&P 500 hitting a record even as the market-cap-weighted tech gauge fell, underscored how narrowly concentrated the AI trade has become in a handful of mega-cap names.
Analysts remain split on how to read the moment. Some argue the selloff is a healthy repricing after months of stretched valuations tied to AI infrastructure spending, noting that second-quarter semiconductor earnings are still expected to post triple-digit percentage growth industry-wide. Others warn that the reliance on vendor financing, supplier credit, and circular purchase commitments between a small number of AI infrastructure players has created a fragility that a single negative headline can expose. Analysts covering the region noted that the reaction reflects both genuine competitive threat concerns from China's advancing chip capabilities and a broader loss of patience with financing structures investors no longer fully understand.
The timing adds another layer of risk. The Federal Reserve began its two-day policy meeting Tuesday, with Chair Kevin Warsh set to deliver a rate decision Wednesday afternoon. A hawkish surprise, combined with the ongoing chip rout, could accelerate the unwind of one of the market's most crowded trades. For now, traders are treating the selloff as a live test of how much of the AI infrastructure boom is built on durable demand versus financial engineering between a tightly interconnected set of companies.