AI Chip Selloff Reaches Europe and U.S. Premarket as IMF Warns an AI Correction Could Be Global

A day after Broadcom's CEO said capital was the biggest constraint on growth, the selloff in AI-linked stocks has stopped being an Asian story. By Tuesday, Oct. 13, it had reached Europe, Wall Street futures and the world's biggest financial watchdog.

The IMF and BlackRock weigh in

"The consequences of an AI correction could be global," the International Monetary Fund said Tuesday in its latest financial stability report. The IMF credited AI with contributing to growth. It also said there is growing evidence that capability investments and economic gains may not be as big as expected.

On Monday, BlackRock's research arm downgraded its outlook on U.S. stocks to neutral. It cited "potential volatility around the AI buildout" and turned bullish on short-term Treasuries.

Damien Boey, a portfolio strategist at Wilson Asset Management in Sydney, pointed to bond volatility rather than just higher yields. "That's starting to work its way out through asset pricing across the board," he said. "Maybe AI capex just comes off the boil a little bit, and maybe a few players are casualties in that."

The backdrop is a bond market under strain. The 10-year Treasury yield sits near 5.24%, and the Federal Reserve recently delivered its first rate hike in three years.

How far the damage has spread

South Korea's Kospi fell more than 6% in a fifth straight session. It is on its longest losing streak in more than two years and is down about a quarter from its July highs. China's tech-focused STAR Market has lost more than a third from its July peaks.

In Tokyo, memory maker Kioxia dropped 13%. SoftBank Group sank 8.5%. Tokyo Electron fell 7.2%, Renesas Electronics 5.9% and Lasertec more than 5%. Disco lost 4.7% and Advantest 2.9%. Bloomberg reported that Asia's benchmark index was pulled to its lowest level since August.

Europe followed. ASML fell 3.3% in early trading. STMicroelectronics and Infineon each lost about 5%, and BE Semiconductor and ASM International about 4%. The broader Stoxx 600 still rose 0.5%, helped by falling oil prices and bond yields.

In U.S. premarket trading, Micron was down about 3%. SanDisk, Seagate and Western Digital were all around 3% lower, and Broadcom was under pressure. Nasdaq 100 futures were down 0.6%, and a chip-stock ETF was headed for a sixth straight daily loss.

Wall Street closed mixed on Monday, with the Dow up 0.38% at 51,850.55 and the S&P 500 off 0.06% at 7,807.24. The Nasdaq Composite fell 0.44% to 27,245.90, and the Philadelphia semiconductor index dropped 2.7%.

Financing fears and a Chinese memory maker

Two stories are driving the selling. One is financing. Executives at Intel and Broadcom have warned that access to capital could become a significant constraint on the industry's expansion. "[What] I think might be the biggest constraint is capital," Broadcom CEO Hock Tan said Monday at the DBS Asia Future Forward Conference in Singapore.

Reuters reports that cracks in AI bets have widened since June. A data centre IPO collapsed in Australia last week, and credit investors are getting pickier on AI debt.

The other is competition. Over the weekend, China's ChangXin Memory Technologies announced "key progress" on a new "4F square" memory-cell architecture that packs more data into less space. CXMT President Cao Kanyu said the company plans to introduce a server-memory product built on the design by the end of 2026, according to a company statement.

Elon Musk added to the mood on Monday. "When China figures out how to manufacture a product, their ability to scale is often greater than the rest of the world combined," he said.

Not everyone thinks the reaction fits the news

Analysts quoted on the CXMT news say the selling outruns the threat. Vey-Sern Ling, senior equity advisor at UBP, said investors are "looking for excuses to take profit on AI-related stocks that have outperformed this year, especially memory stocks." He said Chinese memory makers "continue to face technology hurdles, especially for more advanced memory like HBM."

Phillip Wool, chief market strategist at Rayliant Global Advisors, called the CXMT advance a significant milestone. But he said the market reaction "appeared disproportionate to the immediate competitive threat." CXMT has yet to show large-scale production and still lags Samsung and SK Hynix in market share, he said. Korean chipmakers, he added, are "unquestionably dominating" high-bandwidth memory.

CXMT's own shares closed 2.8% lower in Shanghai.

What comes next

JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report third-quarter results today. Options markets are pricing moves of 2.5% to 2.8% for JPMorgan and Goldman after their reports. The KBW Bank Index has dropped more than 10% since mid-August.

The next test for the AI trade comes Thursday, Oct. 15, when TSMC reports. Analysts expect net profit to jump 65% from a year earlier to NT$746.3 billion, roughly $23.4 billion, which would be a sixth straight record quarter. Whether that holds up against a market now questioning the cost of funding the buildout is the open question.