Asian chip stocks plunge on China lithography fears

Asian chip stocks suffered a sweeping sell-off on Tuesday as fears over China's progress in developing homegrown lithography machines combined with broader concerns about AI infrastructure spending to trigger one of the sharpest declines in the sector this year.

Taiwan and South Korea Lead the Decline

Taiwan's Taiex suffered its third-largest single-session point drop on record, falling 2,030.83 points, or 4.65 percent, to close at 41,603.36, according to Taiwan's Central News Agency. TSMC ↘ 1.20%, which dominates the island's stock market by capitalization, declined alongside the broader index as investors shed semiconductor positions.focustaiwan

In South Korea, the sell-off was even more severe. Samsung Electronics and SK Hynix plunged as much as 9.5 percent and 10.9 percent respectively, dragging the Kospi down 7.3 percent in early trading, Reuters reported. In Japan, memory chipmaker Kioxia also came under heavy selling pressure as the rout spread across the region.wtaq+1

China's DUV Machines Spark Geopolitical Fears

The sell-off was catalyzed by a report from The Information on Monday revealing that a Shanghai-based, state-backed company has begun mass-producing domestically developed immersion deep ultraviolet lithography machines — equipment long monopolized by Dutch firm ASML ↘ 0.19%. The machines are expected to be delivered this year to leading Chinese chipmakers including SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies, with plans for approximately five units this year and 20 in 2027.kfgo+1

The news sent shockwaves through global semiconductor equipment stocks on Monday. ASML fell more than 7 percent in U.S. trading, while Nvidia ↘ 1.47% dropped nearly 5 percent and AMD Advanced Micro Devices, Inc. ↘ 1.47% fell more than 5 percent. The Philadelphia Semiconductor Index PHLX Semiconductor Sector ↘ 1.19% declined sharply as well.indexes.nasdaqomx+2

Broader Concerns Amplify the Rout

The China lithography report compounded existing investor anxieties over the sustainability of massive AI infrastructure spending. Dealers in Taipei cited lingering doubts about whether AI development spending can deliver comparable returns. The sell-off followed a turbulent month for the sector: TSMC's strong earnings on July 16 had paradoxically triggered heavy selling as investors rotated out of crowded AI-related trades.youtube+1

The Straits Times reported that investors were also grappling with financing risks tied to AI infrastructure, adding another layer of concern to an already nervous market. Despite the sector's record-breaking rally in the first half of 2026 — the Philadelphia Semiconductor Index had more than doubled year-to-date through June — the correction underscores how sensitive the trade has become to competitive threats and valuation worries.straitstimes+1