Global equities fell to their lowest level in a month on Tuesday as investors accelerated a selloff in semiconductor stocks amid mounting concerns over China’s rapidly advancing chip industry, the growing cost of financing the artificial intelligence boom, and increasing expectations that the U.S. Federal Reserve could raise interest rates as early as this week.
The broad risk-off move was led by Asian technology shares, where heavily valued semiconductor companies suffered steep losses after months of extraordinary gains, while lower oil prices and shifting geopolitical risks added another layer of uncertainty for investors.
The MSCI All Country World Price Index fell 0.5% to its lowest level since June 29, reflecting broad weakness across global equity markets.
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The sharpest declines came from South Korea, where the benchmark KOSPI tumbled more than 10% to a three-month low, triggering a circuit breaker during trading. The benchmark is now on course for its worst monthly performance on record, surpassing losses recorded during the 1997 Asian financial crisis.
The correction marks a dramatic reversal for one of the world’s best-performing equity markets. The KOSPI had more than tripled over the 12 months through June as investors poured money into AI-linked semiconductor stocks. Since reaching that peak, however, the index has lost more than one-third of its value as investors rapidly unwind leveraged positions and take profits.
Chipmakers were at the center of the selloff.
Shares of SK Hynix and Samsung Electronics each plunged more than 12%, extending a sharp correction that has erased a significant portion of their AI-driven gains.
The weakness spread beyond Asia. U.S. chipmakers Nvidia and Micron Technology fell in premarket trading after Nvidia had already lost 5% overnight.
Investor sentiment toward Nvidia deteriorated after The Wall Street Journal reported that the company was discussing providing roughly $250 billion in financing guarantees for OpenAI as part of a massive data center expansion project.
The report reinforced growing concerns that the next phase of the AI race may require enormous capital commitments from technology companies, potentially weighing on profitability even as demand for AI infrastructure remains robust.
Analysts say investors are increasingly scrutinizing whether the industry’s extraordinary earnings growth can justify soaring valuations and escalating capital expenditure.
“You’ve seen the companies paying for AI, the hyperscalers, not really participating because of concerns about the cost and the degree of leverage that needs to be taken on. And now we’re seeing questions over the profitability of the semiconductor space, particularly in Asia,” said Dorian Carrell, head of multi-asset income at Schroders.
“The broader AI story has some way to go, but these kinds of (profit) growth rates are rarely sustained. We think that it’s healthy that the market’s questioning these things.”
Fresh competitive pressure from China also weighed heavily on semiconductor stocks.
Dutch chip equipment manufacturer ASML dropped 8.5% after The Information reported that China has begun manufacturing domestically developed immersion deep ultraviolet (DUV) lithography machines, technology that ASML has long dominated globally.
The development raises the prospect that China is making meaningful progress toward reducing its reliance on Western semiconductor equipment amid ongoing U.S. export restrictions.
Investor concerns were amplified after Chinese memory chipmaker CXMT Corp. completed an $8.6 billion stock market listing on Monday. The company ended its first trading session as China’s most valuable listed company, highlighting investor confidence in Beijing’s efforts to build a self-sufficient semiconductor industry.
The developments have intensified fears that Chinese companies could eventually challenge the dominance of established global semiconductor manufacturers across key segments of the industry.
European equities proved comparatively resilient.
Strong corporate earnings from Unilever and Mercedes-Benz helped offset weakness in technology shares, allowing European markets to outperform their Asian counterparts.
Meanwhile, investors continued to monitor the outlook for U.S. monetary policy ahead of the Federal Reserve’s interest rate decision on Wednesday. Markets are pricing roughly a 35% probability that policymakers will raise interest rates by 25 basis points this week, with expectations for further tightening continuing to support the U.S. dollar.
The euro remained under pressure, trading below the $1.14 level at $1.1370, while the Japanese yen hovered near a four-decade low at 163.83 per dollar. The yen’s weakness has heightened speculation that Japanese authorities could intervene in foreign exchange markets if the Bank of Japan keeps interest rates unchanged and the currency depreciates further.
“If BOJ communication is not hawkish enough and USD/JPY heads higher, traders should anticipate an official response, including verbal intervention, rate checks, or even direct FX market intervention, perhaps on Friday,” said Thierry Wizman, currency and rates strategist at Macquarie Group.
Geopolitical developments also remained a key driver of market sentiment.
Oil prices extended their sharp decline after President Donald Trump said the United States was having “good talks” with Iran, fueling optimism that negotiations could reduce tensions following Washington’s suspension of air strikes over the weekend.
Brent crude futures fell more than 3% to $85.55 per barrel, extending Monday’s nearly 9% decline as traders reduced the geopolitical risk premium built into oil markets.
The easing in oil prices contributed to a decline in U.S. Treasury yields, with the benchmark 10-year yield falling about four basis points to 4.64% on Monday. However, shorter-dated Treasury yields remained relatively stable, reflecting investor caution ahead of the Fed’s policy announcement.
According to Wizman, developments in the Middle East remain central to the global economic outlook because of their influence on energy prices and inflation.
“The U.S.-Iran war, by propelling the price of crude oil, remains the most important determinant of what will happen to the global economy … and, by extension, what informs central bank policy outlooks, at the margin,” he said.
“We expect that the (Fed) this week will wish to adopt a tightening bias.”
The combination of rising interest rate expectations, uncertainty over AI-related spending, growing Chinese competition in semiconductors and lingering geopolitical risks has prompted investors to reassess some of the market’s biggest winners.
While enthusiasm surrounding artificial intelligence remains intact over the long term, analysts say the recent volatility reflects a shift toward greater scrutiny of valuations, financing requirements and the sustainability of earnings growth across the sector.