Semiconductor stocks plunge on AI spending doubts and China chip advances

Global semiconductor stocks suffered a sharp selloff on July 28, driven by mounting concerns over the sustainability of AI infrastructure spending and reports of progress in China's advanced chipmaking. Samsung Electronics fell 13.4% in its worst one-day decline in nearly two decades, SK Hynix dropped 14.7%, and South Korea's Kospi index closed down 10.8%, marking its biggest single-day decline since March. The Philadelphia Semiconductor Index retreated for a fourth straight session, while SK Hynix's US shares fell 7.5%, briefly dropping below their initial public offering price.

Analysts attributed the rout to three overlapping concerns: questions about whether hyperscalers will see returns justifying billions in AI capex; reports that Chinese state-backed firms are developing domestic deep ultraviolet lithography machines that could accelerate memory-chip maker capacity expansion; and a hawkish surprise from Federal Reserve Chair Kevin Warsh, with nine of eighteen policymakers now projecting rate hikes in 2026 (up from zero in March). The selloff spread globally, hitting Japanese chip-equipment makers and foundries across Asia and the US simultaneously.

For infrastructure architects: the sell-the-news dynamic matters here. Despite Samsung reporting 1,800% year-over-year profit growth, investors reassessed stretched valuations after the Philadelphia Semiconductor Index's 130% rally. Hyperscaler capex guidance remains at ~$725B for 2026 (up 77% vs. 2025), but margin-of-safety concerns and near-term funding-sustainability narratives now dominate positioning. Watch earnings clarity this week on actual AI ROI.