China's DUV Mass Production, Overlapping AI Capital Expenditure Concerns, and Other Factors Trigger U.S.-Korea Semiconductor Sector Sell-Off; South Korea's KOSPI Index Triggers Circuit Breaker

BlockBeats News, July 28th: The South Korean KOSPI index fell 8% today, triggering a circuit breaker. SK Hynix plummeted over 12%, Samsung Electronics dropped over 10%, and on Monday, the Philadelphia Semiconductor Index in the U.S. fell more than 5%. The sharp decline in the U.S. and South Korean semiconductor sectors this time was mainly driven by factors such as the progress of the Chinese chip industry, concerns about AI capital expenditures, and investors taking profits at high levels.

China has made progress in the semiconductor manufacturing equipment field, with Chinese companies starting to mass-produce domestically developed DUV (Deep Ultraviolet) lithography equipment, triggering a sell-off in semiconductor equipment stocks. ASML plunged 5.80%. However, Samsung Securities pointed out that the related equipment still needs to verify its mass production capability, the short-term output is limited, and Chinese AI chips and server DRAMs are currently unable to enter the U.S. data center ecosystem, limiting the actual impact of this AI semiconductor cycle. In addition, Citrini analyst Jukan stated that the news of China's progress in DUV lithography technology is not particularly surprising, as the market had previously formed certain expectations. The Information's related report only cited a speech by a professor at a Chinese university at an internal meeting in June, without disclosing more substantive information. The sell-off in stocks of semiconductor equipment companies such as ASML is considered an overreaction.

J.P. Morgan believes that although Chinese domestically produced immersion DUV lithography equipment has started small-scale production and plans to produce about 5 units and 20 units in 2026 and 2027 respectively, its performance, reliability, and mass production capabilities still need further verification, and it is still far from truly replacing ASML's equipment. The recent decline in semiconductor stocks such as ASML is more due to deteriorating market sentiment rather than fundamental damage, and ASML's performance trajectory is not expected to change as a result.

On its first day of listing, Yangtze Memory Technologies Co., Ltd. surged 466%, becoming the largest A-share listed company in China by market value. The market believes that the process of self-sufficiency in China's storage industry may accelerate. Analysts believe that following Yangtze Memory Technologies Co., Ltd.'s completion of Asia's largest IPO this year, the company's enhanced capital base will further enhance its future production expansion, technological research and development capabilities, posing long-term competitive pressure on global memory chip leaders. As a result, the entire storage sector saw a widespread decline, with SanDisk (SNDK) falling 11.02%, SK Hynix (SKHY) falling 7.47%, and Western Digital (WDC) falling 4.21%.

Meanwhile, NVIDIA's recent announcement of a $750 billion large-scale infrastructure partnership has reignited market concerns about the return on AI capital expenditures, refinancing, and supplier financing risks. Investors have begun to question whether massive data center investments can translate into sufficient revenue, further suppressing chip stock valuations. NVIDIA's credit default swap costs soared, leading to a downturn in tech stocks, with NVIDIA (NVDA) falling 4.99%. Hideyuki Ishiguro, Chief Strategist at Nomura Asset Management, stated that after reports of significant investment deals involving NVIDIA, its credit risk has increased, which investors see as a bearish signal.

Furthermore, the semiconductor sector had previously seen significant gains, and the market itself has entered a profit-taking phase. Old bearish narratives such as the peak of the semiconductor cycle, weakened profitability due to excessive capital expenditures, and the improvement of China's semiconductor self-sufficiency are being reevaluated, leading to a reinforcing cycle of price declines and deteriorating market sentiment. Samsung Securities believes that the current decline largely reflects the sector's fragile sentiment and is not sufficient to demonstrate that the AI data center investment cycle has peaked.