Susannah Streeter, Chief Investment Strategist, Wealth Club:‘’The AI powered rollercoaster has taken another lurch downwards, with chip stocks falling sharply, as investors reassess rising competition and future demand. Just as geopolitical tensions appear to be easing slightly, there’s been a refocus on the runners and riders of the tech revolution, with a new kid on the chip block causing mayhem.
Markets in Asia were roiled by a sell-off, with South Korea’s Kospi plunging 10% and Japan’s Nikkei sliding more than 4%. Wavering sentiment towards semiconductor manufacturer stocks, which have hit eye-watering valuations and skewed the performance of indices, prompted the falls. SK Hynix and Samsung both were down more than 12% at one point, with trading halted on the Kospi amid the frenzied sell-off. The trigger appears to have been the blockbuster debut of ChangXin Memory Technologies (CXMT) on the Shanghai STAR Market, causing frissons of worry about just how quickly the Chinese memory maker will aggressively expand production.
It’s the fourth-largest producer of DRAM and threatens to knock market leaders SK Hynix and Samsung off their perches. DRAM is the dynamic fast-working memory used in everyday items from smartphones and computers, but crucially also for AI accelerators, microprocessors designed to execute AI workloads at lightning speed. Investors had allocated significant chunks of portfolios to the South Korean chip makers and are rotating out to free up capital in expectation there will be more chip opportunities coming out of China and its ambitious AI strategy, with more expected to flow through the IPO pipeline. US-listed Micron shares also fell back, as investors assess the growing competition and adjust allocations.
It’s a reminder just how volatile AI investments are right now, given how quickly tech is advancing and how the market share of mighty incumbents threatens to be gobbled up. There are also big questions about demand once this ferocious build-out phase of AI infrastructure has waned, but for now the big focus is who will be the future winners of growing global demand.
The Footsie’s tech-light nature has insulated it from the turbulence hitting markets elsewhere. It’s set for a flat start to trading, with lower crude prices pulling down listed energy giants, as hopes rise for a positive outcome of talks over the Middle East crisis. Investors are also digesting key corporate results, with Unilever providing particular cheer.
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