Global semiconductor stocks are experiencing a massive sell-off, with the industry’s market value eroding by approximately USD 500 billion, as investors grow concerned about excessive valuations of AI-related stocks. This sell-off was triggered by weaker-than-expected corporate earnings reports, compounded by the macroeconomic backdrop of persistently high interest rates, signaling a severe test for the previous strong rebound in the semiconductor sector driven by artificial intelligence.
A global sell-off driven by concerns over inflated valuations amid the artificial intelligence (AI) boom is causing substantial losses for chip stock investors, with approximately USD 500 billion wiped off the sector's market capitalization. Against the backdrop of interest rates potentially remaining “higher for longer,” growing investor skepticism about the industry’s profit potential and valuation levels marks a severe test for this year’s robust AI-driven rebound.
On Wednesday, this sell-off intensified in Asian markets. The Korea Composite Stock Price Index (Kospi) plummeted as much as 6.2% during the session, dragged down by chip giants Samsung Electronics and SK Hynix, marking its steepest single-day decline since President Trump implemented comprehensive tariffs. In Japan, shares of chip testing equipment maker Advantest Corp. plunged nearly 10%, dragging the Nikkei 225 index down by more than 4%.
According to data compiled by Bloomberg, following Tuesday’s decline in the Philadelphia Semiconductor Index, Asian chip stocks continued the rout on Wednesday, with the combined selloff in both markets wiping out approximately USD 500 billion in market value. This sudden downturn has brought an abrupt chill to the semiconductor sector, which had previously been hitting record highs propelled by AI-related momentum.
This pullback underscores just how fragile the AI-driven rally in semiconductor stocks has become after months of frenzied enthusiasm. Since hitting a low in April, bets on surging demand for AI computing power have added trillions of dollars to chipmakers’ market valuations. Now, however, market sentiment is shifting.
Valuation Pressures Amid the AI Boom
The latest wave of selling directly stems from investor disappointment with corporate earnings reports, exacerbating concerns that valuations have reached “astronomical” levels.
Despite the ongoing AI boom, some key companies’ forward guidance has failed to meet the market’s lofty expectations. Shares of Palantir Technologies and Advanced Micro Devices (AMD) were sold off by investors following their earnings forecasts. After significant stock price gains earlier this year, any underwhelming outlook has been sufficient reason for investors to take profits.
Macroeconomic Clouds and Spreading Pessimism
Beyond concerns about individual stock fundamentals, broader macroeconomic uncertainties are also pressuring the semiconductor industry.
Warnings from Wall Street executives about a market "long overdue for a correction," weakening expectations of Federal Reserve rate cuts, and the prolonged U.S. government "shutdown" have collectively weighed on market sentiment. These factors have made investors more cautious when faced with highly valued sectors, especially amid current uncertainties surrounding the interest rate outlook.
Some market observers believe there is currently a lack of positive catalysts to support buying. "The entire market is painted red, depicting a bleak and dampened risk landscape," said Chris Weston, Head of Research at Pepperstone Group. "We must remain open-minded as this sell-off could potentially intensify further. Simply put, there aren’t many reasons to buy here right now." His perspective reflects a growing sense of pessimism in the market, where investors are increasingly inclined toward risk aversion until clear, positive catalysts emerge.