SK Hynix, Samsung tumble on China chip competition fears

South Korean semiconductor stocks tumbled on Tuesday as a wave of investor retreat from AI-related holdings swept across the sector. Samsung Electronics fell as much as 9.5%, while SK Hynix, a key supplier of high-bandwidth memory (HBM) chips to Nvidia, dropped as much as 11.1%. The selloff was particularly acute for SK Hynix, whose U.S.-listed shares closed at $143.02, falling below the $149 initial public offering price, while the broader KOSPI benchmark index fell around 8%.

The slide was driven by multiple concerns about the sustainability of the AI-driven semiconductor rally. According to Han Ji-young, an analyst at Kiwoom Securities, reports that Chinese companies were developing domestic deep ultraviolet (DUV) lithography equipment reignited fears that Chinese memory makers could accelerate capacity expansion, intensifying competition in the global memory market. Although details such as the companies involved, equipment performance, and commercialization timelines had not yet been disclosed, the news cooled investor sentiment at a time when the investment narrative for semiconductor stocks had already weakened. Separately, a Wall Street Journal report that Nvidia could provide a roughly $250 billion（約40兆円） financial backstop for an OpenAI data-centre project sent Nvidia shares down nearly 5%, with investors questioning the extent to which the AI chip leader may be financing its own customers.

Additional headwinds came from concerns that the expected intensity of future AI workloads might be lower than anticipated. The growing popularity of low-cost Chinese open-source AI models such as Kimi K3 raised questions about whether AI applications could run on less powerful and less expensive chips than previously expected, potentially reducing demand for advanced AI chips and HBM. Meanwhile, the strong stock-market debut of Chinese memory-chip maker CXMT further fuelled concerns about intensifying competition in the global memory industry.

Investor caution was also building ahead of a series of earnings reports scheduled for later in the week. Han noted that despite stronger-than-expected earnings from Samsung Electronics earlier in July and Alphabet the prior week, semiconductor shares experienced sharp declines after the results were announced, indicating that near-term earnings strength was no longer enough to offset longer-term competitive and structural concerns.

The sharp decline in Korean semiconductor stocks reflects a turning point in investor sentiment toward the AI-driven chip rally that has dominated markets. SK Hynix, as a critical supplier of high-bandwidth memory chips to Nvidia, has been particularly exposed to shifts in this narrative. The selloff on Tuesday was triggered by a combination of structural and sentiment-driven factors: reports of Chinese progress in developing domestic deep ultraviolet lithography equipment directly threaten the competitive moat that has insulated Korean and Taiwanese memory chipmakers, while news of Nvidia's potential $250 billion（約40兆円） financing commitment to OpenAI's data-centre project raised questions about whether the AI infrastructure buildout is sustainable without public funding and whether Nvidia itself is overextended in supporting its customers.

The third headwind—the rise of low-cost Chinese open-source AI models like Kimi K3—introduces the possibility that the explosive growth in AI workloads that underpinned the original semiconductor rally may not materialize as predicted. If future AI applications can run on less powerful hardware, the entire case for massive spending on advanced HBM and cutting-edge chips weakens. Analyst Han Ji-young at Kiwoom Securities noted that while concrete details about Chinese lithography capabilities remain sparse, the mere possibility has cooled sentiment at a moment when the investment narrative for semiconductor stocks had already started to weaken. The fact that earnings beats from Samsung and Alphabet failed to reverse the decline suggests that investors are now pricing in longer-term competitive and demand risks, not just near-term profitability concerns.

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