Black Tuesday! Global chip stocks hit hard, SK Hynix plunges 13%, AI returns become the biggest market concern

```

The cracks in the AI capital expenditure bubble are piercing the valuations of chip stocks in the most intense way.

Global chip stocks experienced a massive sell-off on Tuesday, as doubts about AI capital expenditure returns, growing concerns over Nvidia’s “circular financing,” and rising competition from Chinese memory chips combined to trigger a “Black Tuesday” spreading from Wall Street to Asia-Pacific markets.

South Korea’s market was hit first. The Kospi Index plunged 10.76%, marking its largest single-day drop since 1998; the drop of over 8% triggered the eighth circuit breaker of the year. SK Hynix fell 14%; Samsung Electronics dropped 13.58%. The Japanese market also came under pressure, with the Nikkei 225 closing down 4%, Kioxia falling 18%, and Tokyo Electron and Nikon both dropping over 9%.

The direct trigger for this sell-off is the market’s patience running thin for tech giants to deliver returns on AI capital spending. Alphabet announced record quarterly profits last week, but its stock still fell more than 7%, and the ripple effects have yet to settle. Meanwhile, Nvidia’s over $750 billion AI infrastructure deals have sparked concerns about “circular financing” in the credit market, and the listing of Chinese DRAM leader CXMT has prompted a re-evaluation of industry competition. These multiple negative factors are putting pressure on chip stocks.

Lingering doubts over AI cash burn, stress intensifies during earnings week

The root of the current sell-off is shaken market confidence over whether massive AI spending will generate reasonable returns.

Last week, Alphabet raised its full-year capital expenditure forecast for 2026 to $195–$205 billion, alerting investors. The Philadelphia Semiconductor Index dropped for three consecutive days, and closed lower again on Monday, with AMD and Nvidia among the biggest decliners in the S&P 500.

Alphabet, Microsoft, Meta, and Amazon are expected to spend a combined $700 billion on capital expenditures this year, with Wall Street predicting the figure could break $1 trillion in 2027. Investors are finding it harder to gauge when and how these investments will turn into actual profits.

Capital.com senior analyst Kyle Rodda stated in a report: “These companies represent the core market pressure—excessive capital spending by AI firms, and concerns among investors that this will erode returns.”

This week, a cluster of risk events is further amplifying the market’s nervous reaction.

Microsoft, Meta, Apple, and Amazon are all releasing earnings; the Fed, Bank of Japan, and Bank of England will announce rate decisions; and over 170 S&P 500 companies report results this week. Chris Larkin of E*Trade from Morgan Stanley noted, “Even if the Magnificent Seven deliver strong earnings, the market may not buy it, especially while AI spending levels keep sparking doubts.”

Pepperstone Group Ltd. strategist Dilin Wu summarized: “The bar is extremely high now; beating expectations no longer guarantees share price gains. We keep seeing this. Today’s partial sell-off may be traders proactively cutting positions ahead of earnings.”

“Circular financing” fears send Nvidia CDS soaring to record

Another core trigger of the market plunge is concerns over Nvidia’s record-scale AI infrastructure deals and their “circular financing” nature.

According to media sources, Nvidia is negotiating with OpenAI to provide about $250 billion in financing guarantees to lock in data center computing power, and is also discussing financing for OpenAI’s $350 billion chip purchase project. Alongside prior deals with SK Group over $500 billion, Nvidia is now linked to AI infrastructure deals worth over $750 billion.

The core concern is the “circular” nature—Nvidia provides financing or guarantees to clients who then turn around and buy Nvidia chips. If AI demand disappoints, losses across the chain will be magnified. Allspring Global Investments portfolio manager Gary Tan said, “Increasing capital is being used to fund future AI clients and infrastructure deployment.”

This worry surfaced first in credit markets.

According to ICE Data Services, Nvidia’s five-year CDS jumped about 14 basis points to 82, its biggest intraday rise since the contract began active trading last November. CDS prices for Oracle, Alphabet, Amazon, Meta, and Broadcom also hit historic highs.

Manish Kabra, Head of US Equity Strategy at SocGen, said: “For hyperscale compute companies, we now look at CDS, not EPS. AI capital spending still outpaces cash generation and is pushing free cash flow for tech giants to cyclical lows.”

Nvidia CEO Jensen Huang disagrees with the “circular financing” doubts. He stated in January: “This so-called circular financing—utterly absurd.” He believes these investments benefit both Nvidia’s business and generate investment returns. However, this view has clearly failed to convince credit markets.

AI debt supply surges, bond market votes against expansion

The credit market is sounding the alarm.

US investment-grade corporate bond issuance exceeded $1.2 trillion in the first half of this year, the highest since 2021, with about $200 billion contributed by hyperscale cloud providers. Lukasz Labedzki of Franklin Templeton Institute noted that this supply, combined with the US Treasury's huge borrowing needs, poses dual pressure.

AI-related bond spreads have recently widened significantly. According to Bloomberg, AI-related 10-year bonds have a spread of about 121 basis points, higher than the roughly 80 basis points for high-grade corporate bonds overall. The US 30-year Treasury yield has stayed above 5% for several weeks, the longest stretch since 2007.

Oracle’s situation is most severe. After announcing it will spend $70 billion on data center construction next year, S&P Global cut its credit rating to BBB-, just above junk; Moody’s changed its rating outlook to negative. Alphabet’s free cash flow turned negative last quarter for the first time in over two decades as a listed company, and its CDS also hit a record 67 basis points.

Meta’s latest financing cost for a $12 billion data center project in Texas has approached junk bond levels. Sona Asset Management CIO John Aylward said the debt “is priced in line with current B-graded bonds…It’s quite an astonishing situation.”

David Brown, co-head of investment grade global at Neuberger Berman, raised a core market question: “The biggest suspense is whether this level of capital spending will permanently grow, and when we will see a turnaround to positive cash flow again. We won’t have answers in the short term, and that explains the current weak performance.”

China DRAM leader lists, reigniting competition worries

Another trigger for the chip stock plunge comes from the changing competition landscape in China's memory chip market.

China's largest DRAM chipmaker, CXMT, was listed on the STAR Market of the Shanghai Stock Exchange on Monday; shares surged over 465% on the first day, with total market value over 3.28 trillion RMB, instantly becoming the largest A-share company by market cap. The IPO raised about 57.9 billion RMB ($8.6 billion), the biggest IPO in Asia this year.

Global investors are now reassessing the competitive outlook for DRAM over the next few years. There are concerns that, after CXMT’s massive fundraising, its capacity expansion and R&D will leap forward, and traditional DRAM business might enter intensified competition earlier, squeezing industry margins.

According to Reuters, Kiwoom Securities analyst Han Ji-young said this sell-off was triggered by multiple factors, including AI infrastructure financing risk, impacts from low-cost open-source AI models in China on computing power demand, and competition worries sparked by CXMT’s listing.

However, most analysts believe the market has overinterpreted the situation. CXMT’s products are still mainly traditional DRAM like DDR4 and DDR5, while profits at Micron, SK Hynix, and Samsung come mostly from HBM and AI memory products. Bernstein analyst Mark Li says the sector pullback actually offers a buying opportunity; he estimates global memory chip revenues will still break $1.3 trillion by 2027–2028.

This week’s big test: dual scrutiny from earnings and central bank decisions

The market has defined this week as an intensive stress test.

Microsoft, Meta, Amazon, and Apple will release quarterly earnings on Wednesday and Thursday; over 170 S&P 500 companies report results; meanwhile, the Fed, BOJ, and BOE will all announce rate decisions. In Asia, SK Hynix and Samsung are first up.

The core focus of earnings is only one: Can AI investments be justified? According to Bloomberg quoting UBS Global Wealth Management, "After 2027, capital spending visibility is limited, and stricter discipline requirements on spending may continue to curb risk appetite."

There may also be surprises on monetary policy. Bloomberg reports Citadel Securities expects the Fed to hike unexpectedly this week; macro chief Frank Flight wrote in a report that a 25 basis point hike on Wednesday would reinforce Chairman Kevin Warsh's credibility in fighting inflation, and mean less advance guidance for each policy move. Traders are pricing about a one-third chance of a Fed hike this week. Flight says, "The market may again be underestimating how hawkish the Fed is turning."

Chris Larkin of E*Trade from Morgan Stanley summarized the current overall situation: “This is a week full of potential surprises, good and bad. Geopolitics and oil prices may be the biggest variables, but even if the Magnificent Seven deliver strong earnings, the market may not buy it—especially while AI spending levels keep raising doubts.”

Risk disclosure and disclaimerThe market involves risks; investments should be made cautiously. This article does not constitute personal investment advice and does not consider the unique investment goals, financial situation, or needs of individual users. Users should decide whether any opinions, views, or conclusions herein are suited to their specific circumstances. Investments made based on this article are at one's own risk. ```