US stock futures took a hit on Tuesday, indicating a weak start for Wall Street due to a global sell-off in technology shares. Nasdaq 100 futures dropped over 2%, while S&P 500 futures fell by more than 1% in pre-market trading. On the other hand, Dow Jones futures showed more resilience, declining around 0.4%.
The decline was triggered by a significant correction in South Korea’s semiconductor sector, a crucial component of the global AI supply chain. South Korea’s KOSPI index plummeted by 10%, leading the Korea Exchange (KRX) to activate a market-wide circuit breaker in response to heavy foreign and institutional selling.
This downturn extended to semiconductor giants Samsung Electronics and SK hynix, with both experiencing over a 12% decline. Reports suggested that SK hynix might slow down AI memory-chip production expansion in favor of traditional DRAM products, raising concerns about future AI-related demand and expenditure.
The sell-off spread across the region, with the MSCI Asia Pacific Information Technology Index falling nearly 5% and breaking an eight-session winning streak. European markets also showed weakness, with Euro Stoxx 50 futures down by more than 1%.
Investors have been questioning the sustainability of the AI trade, which has been a major force behind global equities reaching record highs this year. Despite geopolitical tensions and high interest rates, doubts linger about whether the substantial investments in AI infrastructure, data centers, and advanced chips will yield returns significant enough to justify the lofty valuations.
Concerns over valuation and the viability of the AI-led market rally were evident in the sharp decline of AI-linked heavyweight SpaceX. The company’s shares plunged by 16%, extending a three-day decline to 23% and erasing over $600 billion in market value. Reports emerged that SpaceX is planning to raise at least $20 billion through its first investment-grade bond offering to support its AI ambitions.
While geopolitical tensions eased in West Asia and oil prices softened, technology stocks received little respite as investors remained focused on valuation worries and the sustainability of the AI-driven market surge. Indian technology stocks also witnessed weakness, with Nifty IT declining by as much as 2.34% or 648.9 points to an intraday low of 26,979.65 from the previous close of 27,628.55. The headline indices Sensex and Nifty dropped by up to 1% during the session.
