Shares of semiconductor companies fell on Tuesday after the head of Broadcom likened many AI investors to “casino” players, and Chinese memory chip maker CXMT said it had made good progress on a new chip architecture.
South Korea’s benchmark Kospi index fell 6.25% as investors dumped chip stocks, while other Asian markets were also lower. Japan’s Nikkei fell 1.8% and Taiwan’s stock market lost almost 2%, with the country’s chipmaker TSMC falling a similar amount.
Shares of Samsung Electronics fell 7.4% on the South Korean stock market, while memory chip maker SK Hynix fell 10%.
In Japan, chip equipment maker Tokyo Electron fell 7.15% while SoftBank Group, an OpenAI investor, lost 8.5%.
U.S. stock futures pointed to a mixed opening on Wall Street after the tech-heavy Nasdaq Composite Index slipped 0.4% on Monday. US chipmaker Micron Technology fell 3.9%, while Nvidia, Advanced Micro Devices and Broadcom also fell. Crude oil prices fell amid escalating tensions in the Middle East.
AI stocks have been on a roller coaster ride in recent months amid concerns that companies are spending huge sums on AI infrastructure, financed by debt.
The latest sell-off came after the South China Morning Post reported on Monday that CXMT had made good progress on new Dram architecture that would increase memory density. Investors fear it could compete with Samsung, SK Hynix and Micron, the world’s largest memory chip makers.
CXMT, which made an impressive debut on the Shanghai Stock Exchange in late July, makes Dram chips, which store data that other AI chips use for their calculations.
“The rout in chip stocks looks set to continue thanks once again to news out of China,” said Chris Beauchamp, chief market analyst at investment and trading platform IG.
“CXMT’s new developments remind investors of the enormous competition in the sector. While great for customers who can ride the white heat of technological improvement and get shrinking margins, they are dangerous for the high-flying tech stocks that have promised so much and on which the entire stock market rally seems to hinge.”
Hock Tan, chief executive of US chipmaker Broadcom, said the AI boom had attracted investors who didn’t really understand what they were betting on.
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“A lot of investors have no idea what they are investing in,” he said at a conference in Singapore, in comments reported by Bloomberg. They “set very extreme expectations only to discover that it’s almost like they’re in a casino.”
AI companies such as ChatGPT creator OpenAI are still loss-making. Tan said OpenAI’s annualized revenue of $50 billion (£38 billion) as of the end of September suggested a viable business model but offered few guarantees of long-term profitability.
“Right now, they are still losing money because they spend a lot on training,” Tan said. “Frankly, it doesn’t say anything at this point except that there is a lot of potential revenue growth through the delivery of cutting-edge generative AI models.”
He pointed out that a significant portion of AI labs’ revenue comes from pilot projects. “When you’re a kid, you go to an arcade, you play,” he said. “Your parents give you $10 worth of chips, you finish it in 10 minutes and you haven’t learned anything. »
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