Global semiconductor stock selloff erases $500 bn in value as fears mount

Core Viewpoint - The global selloff in semiconductor stocks is driven by concerns over high valuations amid the artificial intelligence boom, leading to significant market capital losses in the sector [1][4]. Market Performance - South Korea's Kospi index fell by as much as 6.2%, with major memory manufacturers like Samsung Electronics and SK Hynix contributing to the decline [2]. - In Japan, Advantest Corp's stock dropped 10%, impacting the Nikkei 225, while Taiwan Semiconductor Manufacturing Co saw a 3.3% decrease [2]. - The Philadelphia Semiconductor Index lost approximately $500 billion in market capitalization on Tuesday, with a similar trend observed in Asian chip stocks on Wednesday [3]. Valuation Concerns - The selloff highlights the stretched nature of the AI-driven rally, with key indexes trading near record highs and chipmakers adding trillions in market value since April [4]. - The Philadelphia SOX gauge is currently trading at nearly 28 times estimated forward earnings, significantly above its five-year average of less than 22 times, raising concerns about stock prices [7]. Investor Sentiment - Wall Street leaders have warned of an overdue correction, compounded by reduced expectations for Federal Reserve rate cuts and a prolonged US government shutdown [5]. - Hedge fund manager Michael Burry's bearish positions on Palantir Technologies and Nvidia contributed to the market's downward pressure [5]. - Palantir's unimpressive forecast and Advanced Micro Devices' disappointing results further exacerbated the selloff [6]. Market Outlook - Some analysts view the pullback as a necessary correction that could make stocks more affordable, especially as major tech firms increase investments in AI [8]. - Fund managers suggest that while there is an AI bubble, it has not yet reached a bursting point, but caution that continued price increases could lead to significant corrections [9]. - The volatility in the market presents both challenges and potential buying opportunities for investors [10].