Asia chipmaking stock selloff erases $500 billion in market cap as fears loom over valuations

(Bloomberg) -- The global selloff in semiconductor stocks accelerated on concern over lofty valuations for some of the artificial intelligence boom’s biggest winners.

Memory makers Samsung Electronics Co. and SK Hynix Inc. dragged South Korea’s benchmark Kospi down as much as 6.2% Wednesday before it pared much of the loss. Japan’s Advantest Corp. dropped as much as 10% while Asia’s largest stock, Taiwan Semiconductor Manufacturing Co., fell more than 3%. All are suppliers to Nvidia Corp.

Selling pressure trimmed roughly $500 billion in combined market capitalization from the Philadelphia Semiconductor Index on Tuesday and a Bloomberg gauge tracking Asia chip stocks on Wednesday.

The pullback signals the growing unease over the sector’s earnings potential and elevated stock valuations, particularly if interest rates stay higher for longer. At the same time, a sense of FOMO is driving some investors to rush back in.

“I wouldn’t say buy the dip now - much of the rally wasn’t about fundamentals so it makes no sense to say it’s a value buy now,” said Chauwei Yak, chief executive officer at multi-strategy hedge fund GAO Capital in Singapore. “But if some of the big tech names drop 15%, 20% then maybe we can consider.”

Wall Street chiefs’ warning of an overdue correction have weighed on the sector this week, alongside reduced expectations for Federal Reserve rate cuts and the prolonged US government shutdown. Hedge fund manager Michael Burry added to the selloff with his disclosure of bearish wagers on Palantir Technologies Inc. and Nvidia.

Palantir helped trigger the meltdown on Wall Street with a forecast that failed to impress investors. A similar reaction to Advanced Micro Devices Inc.’s post-market results and outlook amplified the impact on Asia’s trading session Wednesday.

“It’s a sea of red across broad markets, and one that offers a gloomy and damp portrayal of risk,” said Chris Weston, head of research at Pepperstone Group. “We need to remain open-minded to the possibility that this could still further build. Simplistically, there aren’t many reasons to buy here.”

Worry has ramped up that stocks are looking pricey. The Philadelphia SOX gauge is trading near 28 times estimate forward earnings, compared with its five-year average of less than 22 times.

Some see the pullback as a good thing, letting some steam out of a rally that had gotten ahead of itself, and making stocks a bit cheaper. With global hyperscalers like Amazon.com Inc. and Meta Platforms Inc. pouring more and more cash into AI, chipmakers and other tech firms are expected to reap further benefits in their results and share prices.

For now, institutional and individual traders alike must grapple with day-to-day volatility. Goldman Sachs Group Inc.’s Retail Favorites Index slid 3.6% Tuesday, roughly triple the loss in the S&P 500 Index.

Vikas Pershad, an Asian equities portfolio manager at M&G Investments, was essentially up all night in Singapore following the market chaos.

“I followed until I went to bed, which is when the US closed at 4 a.m., took a short nap and then got ready for Asia,” he said. “We’ve come so far, so fast, investors shouldn’t be surprised if this continues tomorrow and the day after,” he said, adding that it’s a good time to watch for buying opportunities.

--With assistance from Sangmi Cha.

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