Western Digital's stock plummeted 6.98% during the pre-market session on Friday, reflecting a severe downturn across the memory and storage chip sector.

The sell-off was primarily triggered by new regulatory measures from South Korea's Financial Services Commission targeting single-stock leveraged ETFs. The regulations raise margin requirements and restrict speculative trading, accelerating the deleveraging of funds that had been active in memory stock trading and amplifying selling pressure. This action specifically impacted memory chip leaders, with the weakness spreading from Asian to U.S. markets.

Furthermore, the decline is part of a broader correction in the AI-driven memory chip rally. Investors are reassessing the sustainability of the AI spending boom, questioning future supply-demand dynamics, and taking profits from stocks that had seen substantial gains. The chip sector selloff has deepened, forcing a reassessment of the staying power of this year's AI-fueled rally.