Semiconductor Stocks Hit Hard as Investors Reassess AI and China Risks:

Today is shaping up to be one of the toughest sessions of the year for semiconductor stocks, with several developments weighing heavily on investor sentiment.

Key concerns driving the selloff include:

• A Chinese state-backed company has reportedly begun mass-producing domestic DUV lithography machines. Investors fear this could reduce China’s reliance on Western suppliers such as ASML and eventually weaken demand for foreign semiconductor equipment.

• Nvidia’s reported US$250 billion backing of OpenAI’s new data centre expansion has sparked concerns that AI infrastructure spending is becoming increasingly circular, with major players funding each other’s growth.

• Nvidia’s additional US$5 billion investment into another AI startup is adding to those concerns, raising questions about whether AI valuations are being supported by interconnected financing rather than independent demand.

• China also completed its second-largest IPO ever, led by a memory chip company. That has increased fears that a wave of new memory capacity could eventually create oversupply and put pressure on memory pricing.

Meanwhile, President Trump attempted to reassure markets by saying the US and Iran are engaged in discussions, helping send oil prices down roughly 7%. Under normal circumstances, a move like that would provide a strong boost to high-beta sectors such as semiconductors. Instead, chip stocks continued to weaken as investors focused on the potential long-term impact of China’s growing semiconductor capabilities.

The market’s message today is clear: if China can successfully build out its own semiconductor ecosystem, the supply constraints that have supported pricing power and earnings growth across the industry could begin to ease.

Whether that concern ultimately proves justified remains to be seen, especially since many of these developments are still in their early stages. However, today’s reaction highlights just how sensitive semiconductor valuations have become, with more than US$500 billion wiped from the sector on the back of a handful of headlines.

As we’ve seen before, when semiconductor stocks come under pressure, capital often rotates into software. That rotation is on full display today, with software names significantly outperforming the broader AI hardware space.

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