AI RETHINK:
Volatility has resurfaced in AI stocks amid concerns about increased competition, possible overcapacity and whether big investments would pay off
A selloff in chipmakers gathered pace last week, driving the high-profile group of stocks to a bear market on worries that the artificial intelligence (AI) spending spree is becoming harder to justify.
The cohort of semiconductor powerhouses last week saw its worst week since April last year, with a key industry gauge sinking 20 percent from a record. News of a powerful Chinese AI model, Kimi K3, by start-up Moonshot AI Technology Co (月之暗面) further shook markets.
Similar to when China’s DeepSeek (深度求索) announced its AI model last year, another low-cost rival to big Western AI models like ChatGPT and Claude could potentially hurt demand for computer chips and other components.
Photo: AFP
All three major US indices retreated on Friday, led by the tech-focused NASDAQ, which lost 1.4 percent. Oil prices jumped more than 4 percent as the US and Iran traded attacks again, with international benchmark Brent North Sea crude closing at US$88.10 a barrel.
On Friday morning, tech sold off worldwide. Indices tumbled 6.47 percent in Taipei, 4.03 percent in Tokyo and 3.05 percent in Shanghai as stocks such as Taiwan Semiconductor Manufacturing Co (台積電) dropped 7.29 percent.
South Korea’s stock market was closed for a holiday, offering some respite, if only temporary. It has been at the center of the AI swings because it is dominated by two huge tech companies, Samsung Electronics Co and SK Hynix Inc.
This past week alone, Seoul’s KOSPI had one day where it surged 6.2 percent and two others where it sank 6.4 percent and 8.9 percent.
“Those who were hoping for a placid summer Friday were in for a rude surprise,” Interactive Brokers LLC chief strategist Steve Sosnick said. “The ostensible reasons were renewed Persian Gulf jitters that pushed oil prices higher, while reports that a new, inexpensive Chinese AI model rekindled DeepSeek-like concerns about that industry’s economics.”
Insatiable demand for all things AI had sent chip shares to their best-ever quarter, but volatility has resurfaced amid concerns about increased competition, possible overcapacity and whether big investments in the technology will pay off.
While earnings and demand trends remain strong, profit-taking suggests some investors are questioning how long the current pace of growth can continue, Trade Nation senior market analyst David Morrison said.
“The question now is whether this will become yet another ‘buy the dip’ opportunity, or if the pace of selling accelerates as everyone rushes to the exit doors at the same time,” he added.
AI-related stocks have become more volatile as investors question the pace and payoff of investments, but corporate earnings have not yet shown any slowdown in demand, Edward D. Jones & Co senior global investment strategist Angelo Kourkafas said.
“The AI theme is likely maturing rather than breaking, which is a healthy part of how transformative investment cycles evolve,” he said. “Investors should maintain exposure to the AI theme, but complement it with more diversified and differentiated sources of return, including cyclical sectors, value-style investments, and international stocks.”
Additional reporting by AP
