SK Hynix record plunge drags down AI chip stocks globally

SK Hynix shares plunged as much as 15% in Seoul on Monday, their steepest single-day decline on record, dragging down AI and semiconductor stocks globally just three days after the South Korean memory giant completed the second-largest stock listing in history on Wall Street.

The selloff in Seoul sent shockwaves through the chip sector, with Nvidia ↘ 1.47%, Broadcom ↘ 2.62%, and AMD Advanced Micro Devices, Inc. ↘ 1.47% all declining in U.S. pre-market trading as investors reassessed valuations across the AI semiconductor complex. U.S. index futures fell, led by weakness in memory and AI chip names.wsj+2

Post-IPO Whiplash

The collapse came after SK Hynix's American depositary receipts rose 13% during their Nasdaq ↗ 0.99% debut on July 10, closing at $168.01 after pricing at $149 per share in a $26.5 billion offering. That deal, which was more than seven times oversubscribed, surpassed Alibaba's ↘ 4.74% 2014 record as the largest foreign listing in U.S. history.cnbc+3

Analysts attributed Monday's Seoul selloff to profit-taking and arbitrage unwinding as the U.S.-listed shares had been trading at a roughly 15% premium to Seoul-listed stock. "The New York momentum is already priced in and the stock may face heavy intraday profit-taking and arbitrage unwinding," said Jason Minsang Kam, head of active equity management at Kyobo Life Insurance Co in Seoul.straitstimes

Earnings Concerns Add Pressure

Beyond the mechanical selling, a Korea Investment & Securities report published Monday projected that SK Hynix's operating profit for the latest quarter may trail consensus estimates by 8%, due to the company's large share of revenue from high-bandwidth memory, where prices are rising more slowly than for conventional chips.straitstimes

The Kospi fell as much as 5.6% on the session, with the broader South Korean market bearing the brunt of the tech rout. SK Hynix shares are now down more than 35% from their June all-time high amid mounting worries over the sustainability of AI spending.straitstimes

Broader AI Rally Under Scrutiny

The selloff marks the latest test of investor confidence in the AI trade. SK Hynix has gained prominence as a key supplier of HBM chips used alongside Nvidia's AI processors, and its stock had risen more than 25-fold since the end of 2022. But a retail-driven frenzy and a surge in leverage have left it susceptible to sharp reversals, as a similar episode involving leveraged ETFs demonstrated in a June crash that triggered double circuit breakers on the Kospi.phemex+1

Monday's weakness underscored how quickly sentiment can shift in a sector where expectations, as the Straits Times noted, "have reached levels that are getting harder to beat."straitstimes