South Korean chip stocks plunge as bond yields fuel AI spending worries

South Korean chip stocks plunged on Wednesday, extending a global selloff in semiconductor shares as rising bond yields raised fresh questions about the sustainability and returns of the huge investments being made in artificial intelligence infrastructure.

South Korea’s benchmark Kospi fell as much as 6.8 per cent before paring some losses, while semiconductor heavyweights Samsung Electronics and SK Hynix each dropped more than 8 per cent at one point. The broader selloff followed a sharp decline in US technology and semiconductor stocks on Tuesday.

A Bloomberg gauge of Asian semiconductor stocks fell about 3.2 per cent. Japan’s Kioxia Holdings dropped as much as 11 per cent, while Taiwan Semiconductor Manufacturing Co. fell nearly 2 per cent.

The moves came as investors reassessed one of the market’s biggest trades of the year — the AI-driven technology boom. Concerns are growing that higher borrowing costs could make it harder for Big Tech companies to sustain the enormous capital spending required to build data centres, buy advanced chips and expand computing capacity.

Rising bond yields hit AI trade

The latest pressure on chip stocks followed a sharp rise in long-term US Treasury yields.

The yield on the 30-year US Treasury bond touched 5.34 per cent on Tuesday, its highest level since 2007, before easing back. The benchmark 10-year yield also climbed above 4.7 per cent, approaching its highest level since early 2025.

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Higher yields make future corporate earnings less valuable in present terms, putting particular pressure on high-growth technology companies whose valuations depend heavily on expectations of strong earnings several years into the future.

The effect is especially important for the AI sector because technology companies are committing vast sums to infrastructure.

Major technology companies have been spending heavily on data centres, servers, networking equipment and advanced semiconductors to expand their AI capabilities. At the same time, some of that investment is increasingly being financed through debt, making the sector more sensitive to higher interest rates.

A Reuters analysis published last week noted that borrowing by AI “hyperscalers” has become a factor pushing up bond yields, as governments and companies compete for funding in debt markets. US 30-year real yields have also climbed to levels not seen in nearly two decades.

Big Tech spending under scrutiny

The concern for chip investors is no longer simply whether demand for AI chips will grow. The bigger question is whether the enormous investment being made today will generate sufficient returns.

The world’s largest technology companies have committed hundreds of billions of dollars to AI infrastructure. A Wall Street Journal analysis has estimated that nine major technology companies have about $3 trillion of off-balance-sheet commitments, much of it linked to AI infrastructure such as data-centre leases and chips.

That has made investors increasingly sensitive to financing costs.

When yields rise, companies face higher costs of borrowing and investors demand greater returns for holding riskier assets. That can pressure both technology valuations and the appetite for further capital expenditure.

The concern is particularly relevant for semiconductor companies because they sit at the centre of the AI infrastructure cycle.

Samsung Electronics and SK Hynix are among the world’s leading memory-chip suppliers, while Taiwan Semiconductor Manufacturing is a key manufacturer for advanced processors designed by major global technology companies.

Wall Street chip selloff spreads to Asia

The Asian selloff followed a steep decline in US semiconductor shares.

The Philadelphia Semiconductor Index fell about 5 per cent on Tuesday, while the Nasdaq Composite dropped 1.33 per cent. Nvidia, Micron Technology and other AI-linked companies came under pressure as investors reacted to higher borrowing costs and concerns about valuations.

The weakness was not confined to chipmakers. Technology stocks more broadly fell as investors reduced exposure to companies whose valuations are most sensitive to interest rates.

The MSCI Asia Pacific equities benchmark fell about 1.6 per cent on Wednesday, while South Korean shares dropped around 5.5 per cent in the latest trading.

Oil adds to inflation concerns

Higher oil prices are adding another layer of uncertainty for markets.

Brent crude traded above $91 a barrel after rising for a fourth straight session. West Texas Intermediate crude was around $85 a barrel.

The increase came amid continuing uncertainty over the US-Iran conflict and the lack of clear progress towards a resolution. Rising energy prices have raised concerns that inflation could remain elevated for longer.

That, in turn, could limit the ability of central banks to cut interest rates and keep borrowing costs high.

The combination of higher oil prices and elevated bond yields has therefore created a difficult environment for technology stocks. Investors are concerned that an energy-driven inflation shock could keep long-term interest rates elevated just as AI companies are undertaking some of their most aggressive investment programmes.

Why South Korea is particularly exposed

South Korea has been especially vulnerable to the semiconductor selloff because chipmakers account for a substantial part of its equity market.

Samsung Electronics and SK Hynix have benefited from strong demand for high-bandwidth memory and other advanced chips used in AI servers.

Their shares have also been among the major beneficiaries of the global AI rally, making them vulnerable to profit-taking when sentiment changes.

The sharp decline therefore reflects more than a one-day move in technology stocks. It highlights the market’s growing sensitivity to the relationship between AI investment, corporate borrowing and global interest rates.

Investors are increasingly asking whether the AI spending boom can continue at its current pace if the cost of capital remains elevated.

Fed policy in focus

US monetary policy is another major factor for markets.

Investors are looking for clues about the Federal Reserve’s thinking on inflation, interest rates and economic growth in the minutes of its latest meeting.

The challenge for policymakers has become more complicated as long-term yields rise even without a corresponding change in short-term interest-rate expectations.

Persistent inflation, heavy government borrowing, increased bond issuance and higher energy prices have all contributed to the rise in longer-term yields. The 30-year Treasury yield’s move to its highest level since 2007 has underscored the scale of the pressure in bond markets.

For equity investors, the immediate question is whether the bond-market selloff proves temporary or represents a more lasting increase in the cost of capital.

If yields remain high, the pressure could extend beyond semiconductor stocks to the wider technology sector.

For now, South Korea’s chipmakers are at the centre of that repricing, as investors balance strong structural demand for AI hardware against a more expensive funding environment and growing scrutiny of the enormous sums being spent to build the AI economy.

With inputs from agencies.