CNA Explains: Why are AI stocks tumbling when demand is still booming?

SINGAPORE: Technology giants are continuing to ramp up spending on artificial intelligence. Demand for advanced chips remains strong. And the world’s largest contract chipmaker has just reported another record profit.

Yet the semiconductor stocks at the heart of the AI boom are tumbling.

The Philadelphia Semiconductor Index fell for eight straight sessions through Friday (Oct 16), shedding about 16 per cent over that period in its longest losing streak since the 2008 global financial crisis.

Also known as SOX, the index tracks 30 of the world’s biggest semiconductor companies listed in the United States, including Nvidia and Advanced Micro Devices, and is widely used as a gauge of the chip industry.

The rout has also spilled over into Asian markets, hitting major players such as South Korea’s Samsung Electronics and SK hynix, which plunged about 18 per cent and 24 per cent respectively last week. In Japan, flash memory maker Kioxia Holdings plunged nearly 24 per cent last week while Taiwan’s TSMC fell about 5 per cent, despite reporting another record quarterly profit.

The sell-off comes even as demand for AI chips remains strong and major technology companies continue to invest heavily in the sector. 

Microsoft, Amazon, Alphabet and Meta are expected to spend around US$600 billion this year on data centres, chips and other infrastructure underpinning AI.

Experts told CNA that while demand for AI remains strong, investors are increasingly questioning whether the massive sums being spent will generate sufficient returns, and how long those returns will take to materialise.

“With AI, the value is real. The timing is where expectations run ahead,” said Anthony Tung, a professor at the National University of Singapore (NUS) School of Computing. 

CNA looks at what is driving the sell-off, why strong demand is no longer enough to keep AI stocks climbing, and whether the rout signals a broader reassessment of the boom.