Chip slump triggers panic selling despite strong memory demand

The market's panic around semiconductor and AI spending does not align with on-the-ground supply conditions. Memory prices are climbing—third-quarter DRAM contracts are settling 20%–30% higher this month—and long-term demand appears locked in: Google and Meta have signed five-year price and volume contracts, while analysts do not expect meaningful new supply until 2028. Intel has publicly stated it cannot meet demand, and Apple has raised consumer device prices due to the semiconductor squeeze, both signals of genuine supply tightness.

Three sources of fear have been circulating. First, China's CXMT debuted Monday with an $8.6 billion raise and a 466% surge, triggering concerns about new competition. Second, reports of a Chinese state company mass-producing DUV lithography machines sparked worries about Chinese self-sufficiency. Third, and most substantive, is concern over hyperscaler capital spending: Alphabet raised 2026 capex guidance from $91 billion to as much as $205 billion, with a note that 2027 will be higher still, and Moody's projects the six largest hyperscalers will spend roughly $785 billion this year and close to $1 trillion in 2027. Yet the returns on that investment remain unclear.

Analysts who track the memory supply chain, however, argue the first two fears do not hold. China has had access to DUV for years; building the machines domestically does not change what Chinese firms can produce, since the real binding constraint is EUV (extreme ultraviolet) technology—a more advanced process that only ASML manufactures and that export controls keep out of China. CXMT's chips are mostly confined to Chinese PCs and handsets for now, and would likely face protectionism and infringement suits if they tried to distribute widely outside China. The real question is whether hyperscalers' spending will deliver returns—a concern that has little to do with Chinese memory competition.