Semiconductor stocks experienced severe declines on Tuesday, with Micron dropping 8.9% and becoming the heaviest weight on the S&P 500. Other major chipmakers also posted significant losses, with Advanced Micro Devices down 8.1% and Applied Materials falling 7.8%. The broader market impact was substantial, with the S&P 500 rising 15.60 points to 7,428.78, while the Dow Jones Industrial Average jumped 537.24 to 52,747.32. The Nasdaq composite fell 55.17 to 24,876.91, reflecting the concentrated pressure on technology stocks. According to Investing.com India, the Korean won (USD/KRW) continued to strengthen on Tuesday, coinciding with these semiconductor stock declines. As reported by Associated Press, the losses for chip stocks were even worse earlier in the day in other markets worldwide, with South Korea's Kospi index falling 10.8% due to sharp drops for SK Hynix and Samsung Electronics. Market trading was temporarily halted at times in Seoul due to the magnitude of the losses.
The semiconductor selloff extended beyond U.S. markets, with South Korea's Kospi index falling 10.8% due to sharp drops for SK Hynix and Samsung Electronics. Market trading was temporarily halted at times in Seoul due to the magnitude of the losses. As reported by Investing.com India, the Korean won appears to have become an important part of the semiconductor story, with a weaker won previously coinciding with increasingly strong gains in semiconductor stocks. The inverse relationship between currency strength and semiconductor performance has been particularly striking in recent months. According to Associated Press, equity analyst Jing Jie Yu of Morningstar noted that "we believe the market was likely spooked by the progress of China's chipmaking equipment capabilities, and was worried that this progress would threaten the competitive position of global chipmaking and chip equipment leaders." However, Yu believes the sell-off is largely a knee-jerk reaction and overdone, stating that the dominant position of global chipmaking leaders is unlikely to be threatened meaningfully.
Korean policymakers appear increasingly uncomfortable with the won's previous weakness, unlike the Bank of Japan. The Bank of Korea has already begun tightening policy, raising its benchmark rate by 25 basis points on July 15. Markets expect another 25-basis-point hike in August and possibly one more before year-end, bringing the policy rate to around 3.25%. Korea's 2-year government bond yield has risen to roughly 3.71%, while the 10-year yield has climbed above 4.3%. This monetary policy tightening has created pressure on the won and contributed to the current semiconductor market volatility.
The semiconductor selloff reflects growing concerns about the sustainability of AI-driven growth. Micron Technology's stock had more than tripled for the year following gangbuster growth, with revenue more than quadrupling during the three months through May 28. However, worries are rising about whether such growth is sustainable as big spenders on computer memory could pull back on investments if AI does not produce as much profit or productivity as promised. Lower-cost AI models from China could also mean less demand for memory and computing power than earlier expected, creating additional pressure on semiconductor companies. According to Associated Press, stock prices generally follow the trend of corporate profits over the long term, and expectations are high for this most recent round of reports with the U.S. stock market still near its all-time high.
If the Korean won continues to strengthen against the dollar, the AI trade is likely to continue unraveling, according to market analysis. The currency tailwind that supported Korean investment in U.S. AI and semiconductor stocks has reversed, leaving investors exposed to both a stronger won and weakening equity prices. This inverse relationship between currency strength and semiconductor performance has been particularly striking in recent months, as the seemingly unstoppable rally in AI-related stocks hits a wall of concern about profitability and cash burn. The upcoming quarterly results from major AI companies including Meta Platforms and Microsoft reporting Wednesday, and Amazon due Thursday, could provide important insights into investment patterns and future AI spending. As reported by Associated Press, because AI superstar stocks have grown so big, their movements carry more weight on the S&P 500 and other indexes than many other companies, but the broad U.S. market could hold up despite their swings if other, less-loved areas are able to keep rising.
