Global chip stocks crash amid AI valuation and interest rate fears

A wave of panic swept through global chip stocks on Tuesday, triggering a sharp sell-off that began in Asia and spread to Europe, threatening a downturn on Wall Street. The crisis was fueled by growing fears of overvalued artificial intelligence companies and increasing borrowing costs in the United States.

In South Korea, the impact was immediate and severe. Samsung Electronics and SK Hynix, memory chip giants that together constitute about half of the KOSPI index's market capitalization, saw their stock prices fall by over 12%. The dramatic decline forced a 20-minute trading halt on the KOSPI, marking the fourth such suspension this year, with the index ultimately closing down 10%.

The sell-off was not confined to Asia. Japan's Nikkei average closed down 3.55%. In Europe, ASML, the continent's most valuable company, saw its stock price drop by more than 5% by mid-afternoon. Infineon, ASM International, and STMicroelectronics also experienced declines ranging from 5% to 8%.

Pre-market trading in the U.S. indicated a similarly bleak opening. Micron Technology shares fell over 8%, while Intel and Marvell Technology saw drops of approximately 7.8%. Nvidia, AMD, and TSMC also experienced losses between 3% and 7%. The iShares Semiconductor ETF declined by 4.6%.

Traders are now bracing for a potential 50-basis-point interest rate hike by the Federal Reserve in December, double the expectation from two weeks prior. This shift reflects a more hawkish policy stance under the Fed's new leadership. Higher borrowing costs could make it increasingly difficult to justify current valuations for AI infrastructure investments, many of which are debt-financed, thus potentially undermining the sector's recent rally.