Memory Chip Stocks Plunge as Chinese Rivals Raise Concerns and AI Boom Doubts Mount
Memory Chip Stocks Plunge as Chinese Rivals Raise Concerns and AI Boom Doubts Mount. The global memory chip market faced a fresh wave of selling in Tuesday trading, pressuring shares of major South Korean and US companies. China's CXMT advances in designing denser memory chips, amid rising concerns over the valuations of AI-linked stocks, have eroded investor confidence
The global market of memory chips faced a new wave of selling in trading on Tuesday; The wave that put pressure on the stocks of major South Korean and American companies. Chinese company CXMT's progress in designing denser memory has undermined investor confidence, while raising concerns about the valuation of AI-related stocks. These developments show that technological competition and doubts about the durability of the artificial intelligence boom can simultaneously affect one of the most important parts of the supply chain of this technology.
Samsung and SK Hynix shares fell more than 5 percent for the fifth day in a row.
The South Korean stock market index fell by about 6% during trading.
The progress of the Chinese competitor in memory design has created a new threat to the big manufacturers.
Uncertainty about the continuation of the AI boom until 2028 has increased pressure on stock valuations.
Why did memory chip stocks fall?
China's technological advancement and intensified competition
One of the main drivers of the market decline was reports about Chinese company CXMT's progress in designing a new memory cell structure. The purpose of this design is to store more information in a smaller physical space; A feature that can be very important in the production of memories used in servers.
This company plans to release a new server memory product based on this architecture by the end of 2026. If commercially successful, such a development could intensify competition with Samsung, SK Hynix and Micron.
These three manufacturers together have about 90% of the global dynamic random access memory market. However, high market share does not mean immunity from competition; Especially if a competitor can bring the new technology to the market at a lower cost and good production efficiency.
The shares of Samsung Electronics and SK Hynix fell by about 8% in Tuesday trading. These two companies account for more than half of the total value of the South Korean stock market; Therefore, their price reduction had a direct effect on the performance of the country's main stock market index.
The Kospi index fell by about 6% during trading. In the American market, Micron shares fell by 3.88% at the end of trading on Monday, and the selling pressure spread in the memory industry.
Doubts about the sustainability of artificial intelligence boom
A significant part of the growth in memory stocks in recent months has come from increased demand for artificial intelligence data centers. The development of these centers requires a large amount of memory and storage equipment, and this issue has helped to strengthen the income and expectations of investors.
However, concerns about the high valuation of technology stocks and the sustainability of demand growth have increased. Broadcom's CEO's comments about the gambling-like nature of investing in AI stocks also helped heighten market caution.
Ha Seok-kun, chief investment officer at Eugene Asset Management Co., believes uncertainty about the continuation of the industry's bullish cycle through 2028 and beyond will weigh on valuations and share prices of Korean manufacturers.
"From my point of view, the importance of this drop is not only in the several-day drop in the stock price; The main issue is testing the sustainability of the competitive advantage of companies that have a large part of their valuation based on the continued growth of the demand for artificial intelligence. China's progress alone does not yet prove a shift in market power, but it could put pressure on the profit margins and pricing power of incumbent producers in the long run. To evaluate this industry, it is more important to focus on production capacity, technology efficiency, investment cost and actual data center demand than to follow daily stock fluctuations. In such a situation, the distance between the real income growth and the optimistic expectations of the market can determine the next path of these companies.
Have the financial foundations of companies changed?
The recent decline does not necessarily mean an immediate weakening of the companies' operating performance. Last week, Samsung announced the preliminary estimate of unprecedented profit for the third quarter; However, this outlook could not prevent the industry's stocks from falling. Micron also reported strong quarterly results in September, and according to the published report, its stock has grown significantly since the beginning of the year.
This contrast shows that the market does not only look at past performance; It also judges the future of profitability, the intensity of competition and the expected growth rate. Even favorable financial results do not necessarily support stock prices when concerns about the future develop.
The drop in memory stocks is the result of a confluence of two concerns: the possibility of increased technology competition from China and doubts about the sustainability of investment growth in artificial intelligence. The successful launch of new CXMT memories can change the structure of the competition, but the extent of its impact depends on product quality, production capacity, cost and customer acceptance. On the other hand, the strong reaction of the market shows that the high expectations of investors have increased the sensitivity of stocks of this industry to negative news.
Artificial intelligence has been used to translate some parts of this report.