Global chip rout deepens 8% as GAM warns AI trade too crowded

Global semiconductor stocks are not yet a buying opportunity as AI-related trades remain dangerously overcrowded, a top fund manager warns.

Global semiconductor stocks have further to fall because AI-related trades remain too crowded for a sustainable recovery, according to GAM Investments' Paul Markham, as the selloff deepened across Asia and the US on Tuesday.

"The market has too many people on the same side of the AI trade right now," Paul Markham, global head of equities at GAM Investments, said in an interview. "The adjustment may not be over."

The KOSPI plunged 8.10% to 6,208.34, with SK Hynix sinking 11.01% and Samsung Electronics dropping 9.45%. In the US, AMD fell 8.31% intraday and NVIDIA lost 4.92%, while the VanEck Semiconductor ETF declined 4.06%, extending its one-month drop to 9.33%. Japan followed Seoul lower, with Kioxia cratering 16.5% and Tokyo Electron dropping more than 9%.

The selloff sets the stage for a pivotal earnings week. SK Hynix reports Wednesday, followed by Meta and Amazon — whose capital expenditure plans will serve as the clearest signal yet on whether AI infrastructure spending justifies current valuations across the semiconductor supply chain.

Summer Liquidity Amplifies the Move

Markham pointed to low summer trading volumes as a key amplifier of the selloff. "Liquidity is thin, which makes rotations faster and price moves larger than fundamentals alone would justify," he said. He recommended investors maintain some tech exposure but reduce position sizes, waiting for better entry points after the crowding clears.

The Korea Exchange triggered a sell-side sidecar after the open, its 22nd such activation this year. A similar mechanism tripped on the Kosdaq shortly afterward. The moves echo Monday's weakness in US chip stocks, where AMD and Teradyne led declines, falling 5% and 4% respectively.

Jim Cramer offered a similar mechanical explanation, warning on X that the sellers driving chip stocks lower are "monstrous, motivated and often margined" — a reference to leveraged funds being forced to liquidate positions. AMD's 143.72% year-to-date gain and Intel's 150.19% advance had loaded margin books with profits that risk desks are now monetizing. Retail sentiment, by contrast, remains bullish: AMD scored 82 (Very Bullish) on Reddit sentiment tracking, while NVIDIA scored 62 (Bullish).

Earnings Season Tests the AI Thesis

The coming days will determine whether the selloff is a healthy correction or the start of a deeper unwind. SK Hynix reports its first earnings since a record Nasdaq debut on Wednesday, the same day as Microsoft and Meta. Amazon and Apple close Big Tech's earnings week on Thursday.

Meta and Amazon's capex disclosures carry particular weight. Alphabet's capex guidance hike earlier this week triggered a 6% drop in its own stock and dragged Meta down 4%, as investors questioned whether AI returns justify ballooning infrastructure costs. Amazon's Q1 capital expenditures hit $44.2 billion, pushing trailing 12-month free cash flow to $1.2 billion.

The pressure has spilled into crypto markets, with Bitcoin trading near $63,199, down 2.9% over 24 hours. US futures pointed to further weakness, with Nasdaq 100 futures down 0.42%.

Despite the near-term caution, Markham said the long-term AI investment thesis remains intact. "Companies like SK Hynix have strong fundamentals — improving margins and pricing power — that still justify premium valuations," he said. The question is whether the market has the patience to wait for those fundamentals to reassert themselves.

For investors, the calculus is straightforward: the fundamental backdrop for AI-driven semiconductor demand has not deteriorated. NVIDIA's data center revenue grew 92% year over year to $75.25 billion in its most recent quarter, and AMD's data center revenue rose 57% to $5.78 billion. What has changed is the leverage in the system, and that is what Markham is asking investors to respect before adding exposure.

This article is for informational purposes only and does not constitute investment advice.