- Shares in Korean chip makers SK Hynix and Samsung are down 46% and 35% respectively over the last month, raising concerns about the sustainability of demand for chips powering AI.
- Capital Economics expects the AI rally to resume despite recent selloffs driven by fear rather than hard evidence.
- Apple's shares have risen 21% over the last month, allowing it to reclaim its title as the world's most valuable company from chip maker Nvidia.
- Concerns over chip supply are heightened by the prospect of greater memory chip supply from Chinese companies, which could impact the market dynamics.
- China's advancements in AI technology are also contributing to investor anxiety, particularly regarding its progress in the AI arms race.
- Capital Economics has noted that while the current earnings expectations for AI companies seem optimistic, they may need to be scaled back in the long term.
Investor concerns are escalating as the recent selloff in AI-linked tech stocks is attributed to fears rather than concrete evidence, according to Capital Economics.37
The firm anticipates a rally will resume, projecting an end-2026 S&P 500 forecast of 8,250, despite acknowledging that earnings expectations may be overly optimistic, predicting a drop to 6,500 by the end of 2027.
Chief Economic Adviser John Higgins highlighted several pressures on shares, including the potential for increased memory chip supply from Chinese companies like CXMT, which recently went public.
Concerns are also fueled by China's advancements in AI, particularly its production of deep ultraviolet lithography machines, which have negatively impacted shares of ASML, a leader in extreme ultraviolet technology.6
The sharp decline in chip maker stocks, with Korean firms like SK Hynix and Samsung seeing drops of 46% and 35% respectively, has raised doubts about the sustainability of the AI chip demand boom.
Despite this, companies like Google and Tesla are committing billions to AI, although skepticism remains about the returns on these investments.
As Russ Mould from AJ Bell noted, "There is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return."
Additionally, environmental concerns are prompting governments to pause or restrict new data center constructions, further complicating the landscape for AI and chip production.
“Capital Economics highlighted that fears surrounding AI-linked tech stocks stem from a potential oversupply of memory chips from Chinese firms like CXMT. Additionally, the firm forecasts an end-2026 S&P 500 target of 8,250, despite concerns that earnings expectations may be overly optimistic.”
Yahoo Finance
