Since becoming Japan's most valuable company, the market capitalization of memory chip maker Kioxia has halved within a month, as investors grow increasingly concerned that the AI-driven industry rally has become overextended.

In early Friday trading in Tokyo, shares of Kioxia Holdings Corp plunged by as much as 14%, marking a 51% decline from last month's peak and erasing at least 29.5 trillion yen ($181.7 billion) in market value. Fueled by artificial intelligence enthusiasm, demand for memory and data storage surged, propelling Kioxia's stock to a year-to-date gain of over 600% by mid-June, which saw its market value surpass that of Toyota Motor Corp. Since then, however, its market ranking has fallen to become Japan's fourth-largest company.

Investors are now scrutinizing global chipmakers more closely, questioning whether the returns from massive AI investments can justify their high valuations. On Thursday, a key index of major U.S. chip stocks fell more than 4%.

In recent months, traders have adopted a more cautious stance toward artificial intelligence, selling related stocks and rotating capital into sectors that have lagged in performance.

Analysts remain optimistic about Kioxia's prospects, forecasting a potential return of approximately 118% over the next year. Additionally, an anticipated rebalancing of the Topix index in October is expected to trigger significant passive fund inflows.

However, a deepening sell-off poses further downside risk for Kioxia, exacerbated by leveraged positions held by Japanese retail investors. Some market participants view the potential exit of shareholder Bain Capital as a signal that the semiconductor cycle and the stock's rally may be nearing a peak.