Asia’s AI chip rally cracks as Kioxia, TSMC and South Korean chip stocks slide

Asia’s chip makers had been riding a powerful AI-fueled rally this year, but the momentum is now cracking. Investors are questioning lofty valuations after months of gains, while regulatory action in South Korea is adding pressure to a market that had drawn heavy speculative activity.

The key takeaway: the sell-off is not limited to one company. Weakness has spread across major chip names in Japan, Taiwan, and South Korea.

Japan’s Kioxia has seen the sharpest reversal. The memory chipmaker soared 631% in the first half of the year and became Japan’s most valuable listed company last month.

That momentum has unwound quickly: Kioxia shares plunged 16% on Friday, and the stock has halved since its June peak. The drop wiped about 30 trillion yen, or roughly $185 billion, from its market value.

Taiwan Semiconductor Manufacturing Co. fell over 5% even after reporting second-quarter profits that surged 77% from a year earlier. The move underscores how strong earnings alone may not be enough when investors are reassessing valuation risk.

South Korea’s market was closed on Friday, but Samsung Electronics and SK Hynix have already fallen roughly one-third from their peaks this year. SK Hynix’s Nasdaq-listed shares closed 14% lower on Thursday.

The weakness followed South Korea’s decision to tighten rules on single-stock leveraged exchange-traded funds after weeks of sharp market swings. Regulators said the measures were aimed at cooling excessive speculation.

South Korea had been one of the world’s hottest equity markets this year, helped by heavy retail participation and leveraged bets concentrated in AI-related names. Mohamed El-Erian said authorities face a difficult balance between tackling inflation and heading off financial volatility that could trigger “disorderly deleveraging.”