Bloomberg) -- A selloff in semiconductor stocks deepened Tuesday, as signs of China’s progress in advanced chipmaking weighed on global rivals and concern mounted over the sustainability of the artificial intelligence spending boom.
A Bloomberg [gauge](https://blinks.bloomberg.com/securities/APACSEM%20Index) of Asian semiconductor shares slumped 7.5%, on course for its worst loss since April 2025, following overnight declines in US peers.
A [report](https://blinks.bloomberg.com/news/stories/TIU7RUT9NJLV) that a Chinese state-backed company has begun mass producing immersion deep ultraviolet lithography machines fueled fears of rising competition that could flood worldwide capacity. Meanwhile, Nvidia Corp.’s [$750 billion](https://blinks.bloomberg.com/news/stories/TIUOX3KJH6V6) in AI infrastructure deals added to worry over AI-related debt levels.
The regional benchmark MSCI AC Asia Pacific Index was poised to enter a technical correction, as investors dumped many of this year’s biggest AI winners. South Korea’s Kospi [plunged](https://blinks.bloomberg.com/news/stories/TIV773VTTCZM) nearly 11%, with memory giants Samsung Electronics Co. and SK Hynix Inc. each sliding more than 13%. Japan’s chip-heavy Nikkei 225 and Taiwan’s Taiex both dropped around 4%.
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The losses underscore how quickly sentiment has turned on one of the market’s most crowded trades. Investors are increasingly questioning whether lofty valuations and an unprecedented wave of AI investment can be sustained. The cost of protecting Nvidia’s debt against default surged by a [record](https://blinks.bloomberg.com/news/stories/TIUAH0KK3NY8) on Monday.
The jump in Nvidia swaps shows “the credit market noticing something the equity market hasn’t fully priced,” said [Dilin Wu](https://blinks.bloomberg.com/people/profile/24126643), a research strategist at Pepperstone Group Ltd. “The bigger immediate catalyst is the China DUV story” weighing on stocks in Japan and Korea.
Growing threats of competition from China have weighed on chipmakers this week. CXMT Corp. completed an initial public [offering](https://blinks.bloomberg.com/news/stories/TIVGLOKK3NY8) that will help fund its plans to expand production of memory chips, which may drive down global prices.
The DUV report fed concerns that this could be accelerated. Mainland China-listed makers of components for chip equipment gained on the news, with Nanjing Wavelength Opto-Electronic Science & Technology Co. and Mloptic Corp. climbing as much as 20%.
“If that supply chain becomes domestically self-sufficient, the threat isn’t just DRAM oversupply, it’s the competitive moat of Northeast Asian semiconductor manufacturing getting slowly ground down,” said Pepperstone’s Wu.
Shares of Japanese chip-equipment makers Nikon Corp. and Tokyo Electron Ltd. slid about 11% each. The fact that China is ramping up its production capabilities for advanced chips is a headwind for Japanese manufacturers, said [Hiroshi Namioka](https://blinks.bloomberg.com/people/profile/16118692), chief strategist at T&D Asset Management.
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The overall declines in Asian chip shares show a lack of confidence at the start of a crucial week of earnings reports from major global technology companies. Plans for expenditures by the likes of Meta Platforms Inc. and Amazon.com Inc. will hold sway over which way stocks move from here.
“The latest selloff in chipmakers shows that doubts over spending, returns and valuations are still deepening rather than fading,” said [Hebe Chen](https://blinks.bloomberg.com/people/profile/22916653), a senior market analyst for Vantage Global Prime. “With several major catalysts approaching, the hesitation to buy the dip suggests investors are waiting for stronger proof before rebuilding exposure.”
Memory and storage stocks have held much sway over the momentum of the AI trade this year, as the surge in chip prices has driven record profits. With doubts rising over the longer term outlook, big gains are rapidly paring.
Kioxia Holdings Corp. slid 18% Tuesday, further paring the rally that briefly made it Japan’s [most valuable](https://blinks.bloomberg.com/news/stories/TG4PW8T9NJLW)company last month. SK Hynix has shed close to $600 billion in market value since the stock hit a record high in June.
Results due later this week from Samsung, SK Hynix and Kioxia may offer further clues for investors after big leverage-fueled swings in their stocks.