Chip Stocks Slide in US and Asia as AI Jitters Rattle Investors
Major chip firms in the US and Asia saw sharp declines as investors grew wary of massive AI spending. South Korea's Kospi index triggered circuit breakers after falling over 10%, led by drops in Samsung Electronics and SK Hynix. Nvidia lost its title as the world's most valuable company to Apple, which benefited from not participating in the intense data centre race. While European markets remained stable, concerns about future returns and rising competition from China are driving profit-taking.
Is it going to earn a proper return in the future? That's what investors are worried about.
- elliotec
I'm cautiously optimistic that this is the beginning of a much needed correction toward sobriety with regards to AI investment. The macro effects of all the money going into AI are apocalyptic. Maybe we can take some deep breaths and move forward a little smarter if the hype fest slows down a tad. And if we're lucky, eventually be able to afford RAM again.
- wanda
I do not work in finance, perhaps someone here can tell me if I have the wrong impression on the situation here:
Tech giants with AI interests, hyperscalers, have used "special purpose vehicles" — shell companies — to quietly issue credit to AI companies, and these AI companies have used this line of credit to purchase/lease compute hardware/infrastructure primarily from their creditors, inflating the demand and price of said hardware.
And much of the future infrastructure has yet to be constructed, and the hardware available now will at some point become obsolete or at least decrease in collateral value.
But the credit doesn't actually come from the hyperscalers themselves, as it exceeds their actual cashflow, so it comes from investment banks and/or private investors/lenders... who actually absorb the majority of the risk then?
And the big banks are currently offloading their loans at discounted rates, while simultaneously trading in swaps against hyperscalers?
I presume the reason for the shell companies/private funding shadiness, is to keep debt off-the-record and perhaps avoid regulation / exceed risk tolerance limits.
Just how exposed are the banks and the hyperscalers in all this?
- torginus
There is undoubtedly a bubble in the sense that AI is crazy overfinanced, and there's a semiconductor shortage - chip makers usually have like mid to low two digit margins for manufacturers of complex chips like NVIDIA, and single digit for ones commodities like memory.
The fact that these companies are either selling these things at multiples of their previous prices, and even then, their P/E ratios are often 10,20,40 shows there's a bidding war for these chips.
It's too much money chasing a fixed amount of product, and the only way to scale the industry is by scaling the entire supply chain, which is a long and expensive process, and certainly isn't fixed by throwing more money at companies.
If existing hardware was sold at the usual margins, all this stuff would cost a tiny fraction of the current price.
This is clearly a precarious position.
- throwa356262
Cheng Chye Hsern [...] said Apple is one the few tech firms "not taking part in the AI race"
They certainly did take part in the AI race. It's just that their public attempts so far have not been very successful
- apparent
So is this good news for the companies that have taken a hit as AI stocks have climbed, and semiconductor shortages have rattled investors?