Focus of the Sell-off: Global Chip Stocks Plummet, $500 Billion in Market Value "Vaporized"

A global sell-off driven by concerns over excessively high valuations in the artificial intelligence boom is causing significant losses for chip stock investors, with the industry's market value evaporating by approximately $500 billion. Against the backdrop of interest rates potentially "remaining high for a longer period," investors' doubts about the industry's profit potential and valuation levels are deepening, marking a severe test for the strong rebound driven by artificial intelligence this year.

On Wednesday, this wave of sell-off accelerated in the Asian markets. Dragged down by chip giants Samsung Electronics and SK Hynix, South Korea's composite stock price index (Kospi) plummeted by as much as 6.2% during the day, marking the largest single-day drop since President Trump implemented comprehensive tariffs. In Japan, shares of chip testing equipment manufacturer Advantest Corp. fell nearly 10%, dragging the Nikkei 225 index down by more than 4%.

According to data compiled by Bloomberg, following the decline of the Philadelphia Semiconductor Index on Tuesday, Asian chip stocks continued to fall on Wednesday, with the sell-off in the two major markets collectively wiping out about $500 billion in market value. This sudden drop has left the semiconductor sector, which had previously reached new highs driven by the artificial intelligence concept, feeling an immediate "chill."

This round of correction highlights how fragile the rally in semiconductor stocks driven by artificial intelligence has become after months of fervent speculation. Since the low in April, investors have bet that demand for artificial intelligence computing power would soar, boosting the market value of chip manufacturers by trillions of dollars. Now, the market's sentiment is shifting.

Valuation Pressure Amid the AI Boom

The latest wave of sell-off is directly rooted in investors' disappointment with corporate earnings reports, which has intensified their concerns that valuations have reached "astronomical" levels.

Although the artificial intelligence boom continues, the earnings guidance from some key companies has failed to meet the market's extremely high expectations. Shares of Palantir Technologies and Advanced Micro Devices (AMD) were sold off by investors following their earnings forecast releases. After significant stock price increases this year, any earnings outlook that fails to impress is enough for investors to take profits.

Macroeconomic Clouds and Spreading Pessimism

In addition to concerns about individual stock fundamentals, broader macroeconomic clouds are also putting pressure on the semiconductor industry.

Warnings from Wall Street executives about the market "needing a correction," a weakening of expectations for Federal Reserve interest rate cuts, and the prolonged "shutdown" of the U.S. government have collectively suppressed market sentiment. These factors have made investors more cautious when facing high-valuation sectors, especially in the current uncertain interest rate outlook.

Some market observers believe that there is currently a lack of positive factors to support buying. "The entire market is blood red, painting a bleak and damp risk picture," said Chris Weston, head of research at Pepperstone Group. "We must keep an open mind; this sell-off could potentially escalate further. Simply put, there aren't many reasons to buy in here right now." His viewpoint reflects the growing pessimism in the market, where investors are more inclined to avoid risk until clear positive catalysts emerge