AI Chip Stocks Drop as Investors Grow Nervous

On October 13, stocks tied to artificial intelligence fell sharply in markets across Asia and the United States. Companies that make computer chips — the tiny parts that power AI systems — saw some of their biggest drops in months. Investors, the people who put money into these companies, are starting to worry that spending on AI might be growing too fast. This is making many people wonder if the great AI boom is changing course.

For almost four years, ever since OpenAI launched its ChatGPT chatbot, huge amounts of money have poured into AI companies. Businesses that make semiconductors (computer chips), build data centres, and lay cables all saw their stocks rise because companies were racing to build AI systems. The rush to spend money on computing power was compared to America's great railroad building era in the 1800s. That gave investors a lot of reasons to be excited.

Now, however, cracks are appearing. In South Korea, shares of chipmakers dropped for five days in a row on October 13. The KOSPI, which is South Korea's main stock index, fell more than 6%. In Japan, a memory chip company called Kioxia saw its stock fall 13%. These were some of the steepest drops in Asia in more than two years.

In the United States, chip stocks also kept falling. The Philadelphia semiconductor index, which tracks chip company stocks, dropped 1.7% on October 13. A company called Micron Technology fell 4%. Even so, chip stocks are still much higher than where they started the year — Micron's stock has actually tripled in 2024, meaning it is worth three times what it was.

One big reason for the worry is rising interest rates. When interest rates go up, it costs more money to borrow. This makes it harder and more expensive for companies to build things like data centres, which need billions of dollars to construct. Damien Boey, a market expert in Sydney, said that rising and unpredictable bond rates are making investors nervous about many kinds of assets, not just AI stocks.

There are also signs of trouble in other parts of the financial world. A company called Firmus, which builds data centres and is backed by the chip giant Nvidia, cancelled a plan to raise US$5 billion from investors in Australia. Investors simply were not interested enough. This showed how quickly people can change their minds about putting money into AI businesses.

Big financial organisations are also sounding alarms. The International Monetary Fund, a global group that monitors the world's economies, warned on October 13 that the consequences of an AI correction could be global. It also said there is growing evidence that AI may not boost the economy as much as people once thought. BlackRock, the world's largest money management firm, also said it was becoming more cautious about US stocks because of possible trouble ahead in AI.

Not everyone thinks the AI story is over, though. On October 12, shares in Meta — the company that owns Facebook and Instagram — jumped 3.4% after it released a new AI model. One investment expert in Singapore, Marc Velan, said the sharp drops in South Korea tell us more about how investors are positioned and the cost of borrowing money than about any real drop in demand for AI. He believes the market is simply moving into a new phase where investors care more about whether AI is actually making money.