Why Samsung and SK Hynix shares crashed up to 9% despite the AI boom

Samsung Electronics and SK Hynix shares slumped as a global semiconductor sell-off spread from Wall Street to Asia. The fall reflected profit booking, valuation worries and fresh questions over the pace of AI spending despite firm chip demand.

In Short

• No single trigger; profit booking and high valuations caused decline
• Wall Street sell-off spread to Asia, dragging broader markets down
• Concerns over future AI spending and stricter regulations hit sentiment

The artificial intelligence (AI) boom has turned companies like Samsung Electronics and SK Hynix into some of the world's biggest stock market winners over the past year.

On Thursday, Samsung Electronics ended nearly 8% lower, while SK Hynix closed around 9% down after a sharp sell-off in global semiconductor stocks. So why did investors suddenly dump their shares?

The decline came despite no major negative company-specific news and just ahead of quarterly earnings from Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker.

The weakness spread from Wall Street to Asia, leaving investors wondering whether the AI-driven rally in chip stocks is beginning to lose steam.

NO SINGLE TRIGGER BEHIND THE SELLOFF

Unlike previous market corrections driven by disappointing earnings or weak guidance, Thursday's sell-off did not have one clear trigger.

According to Reuters, traders said there was no "smoking gun" behind the decline. Instead, the sell-off reflected a combination of profit booking, concerns over rich valuations and investors setting an increasingly high bar for semiconductor companies.

Brian Heavey, an equity trader at JPMorgan, said the market was witnessing an aggressive pullback in memory and hardware stocks, adding that expectations for chipmakers had become extremely high after months of strong gains.

PROFIT BOOKING AFTER A MASSIVE AI RALLY

One of the biggest reasons behind the decline appears to be investors locking in profits.

Both Samsung Electronics and SK Hynix have been among the biggest beneficiaries of the AI boom as demand for high-bandwidth memory (HBM) chips used in AI servers surged.

Analysts believe the latest correction reflects profit booking after a prolonged rally rather than any major deterioration in business fundamentals.

Rolf Bulk, Head of Semiconductor & Infrastructure Equity Research at Futurum Group, told CNBC that Thursday's weakness largely followed the sell-off in US semiconductor stocks overnight. He added that the long-term outlook for AI infrastructure and memory chips remains intact despite the recent correction.

WALL STREET SET THE TONE

The selling began in the United States before spilling over into Asian markets.

Micron Technology dropped 8%, Intel fell more than 4%, while Advanced Micro Devices (AMD) and Lam Research each declined around 3%.

Even ASML, the world's leading supplier of advanced chipmaking equipment, ended lower despite raising its full-year sales forecast for the second time this year and announcing plans to expand production capacity.

According to Reuters, investors have become increasingly demanding, with even strong earnings and upbeat guidance no longer enough to drive semiconductor stocks higher.

AI SPENDING CONCERNS HAVE RETURNED

Investor sentiment was also hit by fresh concerns over future AI spending.

According to CNBC, reports that cloud computing company CoreWeave is exploring ways to hedge against future declines in memory chip prices have raised questions about whether the current pricing cycle can continue.

Another factor weighing on sentiment was New York's decision to temporarily halt approvals for new large-scale data centre projects while stricter standards on energy, water usage and environmental impact are developed.

Although analysts do not believe these developments will significantly affect long-term demand, they have contributed to near-term caution.

VALUATIONS HAVE BECOME A CONCERN

Experts also say semiconductor stocks have become one of the most crowded trades on Wall Street.

Louis Kondratev, trader at XFUNDs, told CNBC that semiconductor companies now account for roughly 20% of the S&P 500 index, compared with just over 8% during the dot-com bubble in 2000. Historically, the sector has represented only 2% to 5% of the benchmark index.

He said earnings growth has remained strong, but investors are beginning to question whether current valuations can continue to rise at the same pace.

THE AI STORY REMAINS STRONG

Despite the sharp sell-off, analysts believe the long-term outlook for semiconductor companies remains positive.

Demand for high-bandwidth memory chips continues to exceed supply as technology giants including Microsoft, Amazon, Google and Meta continue investing heavily in AI infrastructure.

According to CNBC, this strong demand continues to give companies such as SK Hynix and Micron significant pricing power.

ASML's decision to raise its sales forecast for 2026 also suggests that demand for advanced chipmaking equipment remains robust despite the recent volatility in semiconductor stocks.

SELLOFF SPREAD ACROSS ASIA

The weakness was not limited to Samsung and SK Hynix.

According to Reuters, South Korea's benchmark KOSPI index fell sharply as the decline in heavyweight chip stocks dragged the broader market lower.

In Japan, the Nikkei slipped about 3%, while MSCI's Asia-Pacific index outside Japan fell 1.7%. Taiwanese stocks also declined ahead of TSMC's earnings, although Hong Kong's Hang Seng Index bucked the trend and ended higher.

Asian markets were also weighed down by renewed geopolitical tensions in the Middle East, with oil prices extending gains after fresh hostilities between the United States and Iran.

ALL EYES NOW ON TSMC

Investors are now waiting for TSMC's quarterly earnings, which are expected to provide fresh clues about the health of the global semiconductor industry.

According to Reuters, the company is expected to report a fifth consecutive quarter of record earnings, with net profit likely to jump 59% in the April-June quarter.

A strong performance and optimistic outlook from TSMC could help restore confidence in semiconductor stocks.

For now, analysts believe Thursday's sell-off reflects elevated expectations and profit booking rather than a collapse in AI demand. But with chip stocks trading near record highs after a massive rally, investors appear to be taking a more cautious approach until the next round of earnings provides greater clarity.

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