Nasdaq 100 Enters Correction as South Korea's Chip Crash Hits Wall Street

Nasdaq 100 closed Wednesday's session more than 10 percent below its June peak of 30,660 points, technically putting the index into correction territory. It is a direct consequence of the panic that gripped the Seoul stock exchange two days earlier and spread to chip markets worldwide.

From Seoul to Wall Street

The trigger was SK Hynix's earnings report, which despite a sixfold jump in operating profit to a record 60.5 trillion won (about $42 billion) disappointed the market because revenue came in below analyst forecasts. Investors had expected confirmation that the boom in HBM memory for AI data centers would continue unchecked for years, and instead got a signal that even this segment has its limits.

On Tuesday and Wednesday, the Korean stock exchange triggered automatic circuit breakers twice in a row, halting trading for 30 minutes each time, the first such occurrence in KOSPI's history. The index, which had hit a record 9,385.59 points as recently as June and briefly made South Korea the world's sixth-largest stock market, gave back a significant share of this year's gains within a matter of weeks.

Chinese Competition as a Catalyst

Adding to the panic were reports that a Chinese state-backed company had begun mass production of DUV lithography machines, key equipment for manufacturing memory chips. The plans call for producing around five machines this year and twenty next year, which investors read as a threat to ASML's dominance. The Dutch company lost more than 8 percent over two trading sessions.

The stock market debut of Chinese memory maker CXMT, which raised $8.6 billion, further fueled concerns that the DRAM and HBM memory market is facing a wave of new supply before the investments made by American and Korean giants have had time to pay off. Brokers also began talking about memory prices peaking as early as 2027, which hit valuations at SK Hynix and Samsung.

Leveraged Bets Unwind

The scale of the panic was amplified by a mass unwinding of leveraged bets. In early July alone, the value of open leveraged positions in Korea reached a record 29.2 trillion won, about $19.7 billion, mostly through ETFs tied to individual Samsung and SK Hynix shares. When sentiment turned, retail investors rushed to close these positions, deepening the losses.

In the United States, this coincided with the Federal Reserve's decision to hold interest rates steady, which stoked fears of persistent inflation. The Dow Jones fell 2.2 percent, or 1,153 points, its worst day since April 2025, while the S&P 500 lost 1.5 percent.

There are too many questions and too few answers regarding AI infrastructure buildout - Dennis DeBusschere, 22V Research

Doubts about spending and returns on investment are deepening - Hebe Chen, Vantage Global Prime

What's Next for the AI Rally

Not all analysts see the correction as a sign that the AI-driven bull market is over. Goldman Sachs' Bruce Kirk argued the decline could actually help the market, since it has lowered the bar of expectations ahead of big tech earnings season, giving strong reports more room to positively surprise investors. UBS analysts suggest the sell-off may be nearing its end, though they stress that uncertainty remains elevated.

Still, rising costs to insure Nvidia's debt in the CDS market are a warning sign that bond investors see risks the stock market has not fully priced in yet. BNY's John Velis notes that the enormous capital demand needed to finance AI data centers could keep interest rates elevated, despite promises that AI itself will lower costs across the economy.

For Polish investors and companies tied to the AI supply chain, the correction mainly means greater volatility in tech and memory-maker stocks, which underpin the valuations of many ETFs also available on the Polish market. The scale of the declines, from Nvidia to Samsung, shows that doubts about returns on AI infrastructure investment are no longer a marginal topic among analysts, but have become a central risk factor for the entire tech sector.