Semiconductor stocks have seen a decline this week, even as some firms report substantial profits. SK Hynix, for instance, announced a 557% increase in operating profit with margins exceeding 80%, but its shares subsequently tumbled by 19%.
This downturn follows a period where the US PHLX chip index nearly doubled over the past 12 months, driven by investor interest in AI hardware providers. US tech firms are reportedly planning nearly $1 trillion in spending on AI data centres next year.
The immediate trigger for the selloff was talk of new competition from China, with chipmaker CXMT listing on Monday. However, concerns also stem from investors questioning the sustainability of Big Tech's AI investments and their potential impact on chip demand.
The semiconductor industry is known for its cyclical nature. While current earnings are rising, there are risks of the chip cycle turning again, with a potential glut as early as 2028 if AI demand disappoints or Chinese supply surges.