Key Takeaways:
Semiconductor stocks extended their July decline Friday, with memory-chip makers Micron Technology and Sandisk leading the selloff as investors questioned whether AI infrastructure spending can justify the sector's valuation.
A rotation out of semiconductor stocks deepened Friday as memory-chip favorites Micron Technology and Sandisk posted sharp declines, extending a July rout that has erased more than 20% from South Korea's chip-heavy Kospi index. The selloff reflects growing caution about the AI trade after a monthslong rally pushed semiconductor valuations to elevated levels.
"The extreme volatility in Korea and Taiwan has made it more difficult to buy the dip," said Ian Samson, a portfolio manager at Fidelity International. "From a portfolio construction perspective, we have to be careful about buying too aggressively."
Korean equities have slumped more than 21% this month, while Taiwan's benchmark has fallen over 5%, with overseas investors pulling about $4.4 billion and $19 billion from the two markets, respectively. The MSCI ASEAN Index, by contrast, climbed 5.8% in July, on pace for its biggest monthly outperformance over broader Asian peers in 24 years, as fund managers rotated into Indonesian banks, Chinese internet giants, and Indian technology firms.
The selloff comes ahead of earnings reports from Meta Platforms Inc., Microsoft Corp., and Apple Inc. next week. Alphabet, Microsoft, Amazon and Meta have collectively forecast as much as $725 billion in capital expenditures this calendar year, with Wall Street expecting that figure to climb to nearly $900 billion by 2027, according to analyst estimates compiled by Bloomberg. The question hanging over memory-chip makers is whether those billions will translate into sustained demand for the high-bandwidth memory (HBM) used in AI data centers.
Citigroup recently cut Korean stocks and upgraded Chinese equities in its emerging-market allocation, citing volatile trading in Seoul and the potential for Beijing to benefit as the local rally broadens beyond a narrow group of AI winners. The Kospi VIX "remains super elevated," said Matthew Haupt, a hedge fund manager at Wilson Asset Management, adding that "there are more stable markets to trade themes rather than Korea at the moment."
For memory-chip makers like Micron and Sandisk, the stakes are particularly high. High-bandwidth memory — a critical component in Nvidia Corp.'s AI accelerators — has been a bright spot for the sector, but oversupply concerns in the broader memory market have weighed on sentiment. Micron, which reports fiscal fourth-quarter results in September, has seen its shares decline as investors weigh the pace of HBM adoption against a potential glut in traditional DRAM and NAND flash memory.
The next catalyst for the sector arrives next week when Big Tech earnings will test whether the AI spending thesis holds. "It's just the uncertainty, unpredictability of this volatility," said John Tsai, portfolio manager at Eastspring Investments. The next leg of rotation will hinge on "results from the big US tech companies and their longer-term capex guidance," he said.
This article is for informational purposes only and does not constitute investment advice.
