The semiconductor sector saw a broad decline on Tuesday, extending a selloff in chip manufacturers following a weak session on Wall Street overnight.

SK hynix closed down 14.65%, while Samsung Electronics fell more than 13%. Other artificial intelligence-related stocks also faced heavy selling: Samsung SDI dropped 11.37%, LG Innotek plunged 16.29%, Seoul Semiconductor closed down 8.78%, and LG Chem declined 7.5%.

Japanese chip stocks also moved lower. Tokyo Electron closed down 10.96%, and Advantest fell more than 10%. SoftBank Group Corp, a key AI investment barometer due to its stake in Arm Holdings, dropped 4.43%. Japanese memory chip maker Kioxia saw its shares plunge over 18%.

The selloff wave spread to Europe, with major chip companies trading lower in early morning deals. Other chip stocks, including ASM International and BE Semiconductor, opened with losses in the 2% to 3% range.

This selloff was triggered by further weakness in the US semiconductor sector on Monday. The VanEck Semiconductor ETF (SMH) fell more than 2%, continuing its decline from Friday. Advanced Micro Devices and Teradyne dropped 5% and 4%, respectively, while Micron Technology slipped about 2%.

The market weakness highlights the deep interconnection between Asian tech stocks and the US AI sector. Samsung Electronics and SK hynix are major global suppliers of High Bandwidth Memory (HBM) chips used in AI servers, making their share prices particularly sensitive to changes in capital expenditure expectations from major US cloud providers.

Irwin Lamont, Senior Vice President at Arcadia Asset Management, said the dramatic swings in SK hynix shares underscore the uncertainty of the AI investment cycle. He believes investors are still struggling to see the ultimate economic impact of this technology. "We are facing a great deal of uncertainty right now," he said in an interview. "No one can predict how the development of AI will affect the economy, so market volatility will persist no matter how the situation evolves."

Lamont also noted that leveraged exchange-traded products have amplified market volatility, although this is not the sole cause of the recent price swings in SK hynix. "On a broader scale, the leveraged ETF structures in both Korea and the US could potentially increase volatility and exaggerate the magnitude of market moves."

Sandeep Gantori, Chief Investment Officer for Equities at Standard Chartered Bank, analyzed that the selloff also reflects a general weakening of sentiment toward the semiconductor sector. However, he believes the long-term outlook for the industry remains unchanged. "The market space is still large enough to accommodate multiple companies developing and sharing the benefits," he said. The AI investment cycle will continue to provide support for leading tech companies.

Gantori added: "Another factor behind the weakness in the Korean market today is that several brokerages have released reports suggesting memory chip prices will peak in 2027, which is not far from our view." Standard Chartered also expects chip prices to peak next year. He concluded: "The key lies in the risk-reward ratio. At current valuation levels, the risk-reward profile has become more attractive."

*This article is for informational purposes only and does not constitute investment advice.*