AI chip selloff spreads, Nikkei down 4.4% by midday

2026-07-28

Japan's Nikkei average fell on the 28th, with the morning close down 2,884.73 points, or 4.44%, from the previous day at 62,046.46. At one point, the decline topped 3,000 points. Growing caution over intensifying competition in semiconductor memory, which supports artificial intelligence infrastructure, sent AI share losses in South Korea rippling into the Japanese market.

Selloff hits AI and semiconductors

Selling intensified from the start of trading, with Advantest and Tokyo Electron both falling more than 10%. SoftBank Group also extended its sharp drop and slipped below 5,000 yen for the first time in about two months. The Nikkei average fell below its 75-day moving average, a gauge of the medium-term trend. Kioxia Holdings was briefly sold down to its lower limit and its market capitalization fell from first to seventh place.

South Korean slump deepens losses

A sharp fall in South Korean shares amplified the decline in Japanese stocks. The Korea Composite Stock Price Index, or KOSPI, briefly fell as much as 10%, and a circuit breaker that temporarily halts trading was triggered after the index had dropped 8% from the previous close. The move far exceeded Wall Street's declines the previous day, when the Nasdaq Composite fell 0.2% and the Philadelphia Semiconductor Index lost 2%, after concerns spread that memory market conditions were deteriorating following the 27th listing of the parent of Chinese semiconductor memory giant ChangXin Memory Technologies, or CXMT. If the selloff since late June is seen as the first wave of Korean-led selling, this time could be viewed as a second wave, as concerns about the earnings outlook for SK Hynix and Samsung Electronics have become more concrete. Wang Xi, head of information at Aizawa Securities, said many market participants believe profit margins cannot keep surging and that the emergence of competitors triggered selling.

Additional headlines weigh

Reports that Nvidia is expanding spending related to AI infrastructure construction also weighed on the market. On the 27th, reports said Nvidia was considering providing about $250 billion in loan guarantees for OpenAI's large data center plan, stoking worries about deteriorating finances and prompting selling in semiconductor-related stocks. Reports that Chinese state-backed companies are stepping up production of deep ultraviolet, or DUV, lithography equipment used in semiconductor manufacturing also fueled selling, and the sharp drop in shares of Dutch equipment maker ASML Holding spilled over to related Japanese companies. Kazuyoshi Saito, senior analyst at IwaiCosmo Securities, said pessimistic chain-reaction selling appeared to be taking hold.

Support remains

Even so, some market participants say Japanese stocks are not breaking down uniformly. Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said defensive shares such as autos and pharmaceuticals remain firm, and money has not left the market. The United States and Iran both delayed attacks, and the front-month September WTI, or West Texas Intermediate, crude futures contract on the U.S. market on the 27th fell 7.5% from the previous Friday. On expectations that lower raw material and procurement costs will ease, Honda, Mitsubishi Motors and Mazda were bought, while railways and pharmaceuticals also rose against the market. Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said the market appears to be reacting too strongly to developments involving AI and semiconductor companies. With earnings from South Korea's SK Hynix, U.S. Microsoft and U.S. Meta Platforms due on the 29th, Kazuyuki Muramatsu, head of investment at Wa Capital, said the market could turn risk-on even without new catalysts if those major results are cleared without trouble.

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