Wall Street is getting trampled by an AI sell-off. South Korean market plunges 10%

By David Goldman, CNN

(CNN) — Volatility has returned to the stock market, and AI is once again the culprit.

A mild US tech sell-off Monday carried over into Asia Tuesday. But that nervous energy sentiment quickly spiraled into full-on panic trading in South Korea, where the Kospi index tumbled 10% Tuesday, tripping a circuit breaker that led to a 20-minute cooling-off session.

SK Hynix and Samsung, two of the world’s leading memory chipmakers, tumbled more than 12%, dragging the rest of South Korea’s stock market down with them (the two chipmaking giants make up about half of the Kospi’s total market value).

Traders’ fear isn’t about anything specific, and there wasn’t any obvious catalyst to lead to such enthusiastic selling.

But those nerves appear to be returning in the United States, where tech stocks were headed for a rough day: The tech-heavy Nasdaq dropped 1.9% Tuesday morning, one day after falling 1.3%.

The broader S&P 500 fell 1.3%. The Dow was 260 points lower at the opening bell, or 0.5%. Wall Street’s fear gauge jumped 17%, signaling elevated market volatility.

Some market analysts pointed to jitters sparked by Google (GOOG) and SpaceX (SPCX) falling somewhat sharply Monday. But Google’s 5% decline was mostly because of a high-profile AI leader defecting to Anthropic, and SpaceX – which dropped 16% Monday – has some post-IPO jitters that are typical for companies whose stocks boom right out of the gate.

Google fell 1% Tuesday, while SpaceX fell 4.6%. Nvidia (NVDA) was about 3% lower, weighing on the broader market. Oracle (ORCL) fell 2% and is down 25% this month.

Other analysts suggested the markets were reacting to the likelihood that the Federal Reserve may raise interest rates later this year. But that’s not exactly new information: New Fed Chairman Kevin Warsh held his first press conference last Wednesday to announce that the Fed would double down on its mission to get inflation under control – a promise that prompted a market sell-off as it interpreted Warsh’s words as a pledge to raise interest rates later this year.

Semiconductor chip stocks, which have led the market rally this year, fell sharply Tuesday: Micron Technology (MU) dropped 11%. Marvell Technology (MRVL) sank 7%.

Whatever the cause, with AI companies’ sky-high valuations and incredible growth trajectories, it doesn’t take much to set off investors. The Kospi is up 90% this year, so when the wind blows in an unexpected direction, it can lead traders – and, often more consequentially, trading algorithms – to head for the exits. They fear the top of the Jenga tower could tip over.

The problem, as always with markets, is no one knows how high the Jenga tower goes. We could still be building the foundation.

Nevertheless, the fear in South Korea spread throughout Asia. Japan’s Nikkei fell 3.6% and tech behemoth Softbank sank 15%. Most other Asian indexes were down more than 1%.

Although tech stocks have been under pressure lately, they really haven’t dropped all that much: The Nasdaq is down about 5.5% from its record high set on June 2.

Stocks have been at or near record territory for most of the past couple of months. After President Donald Trump announced a ceasefire in Iran in April, the market largely moved on from the war and returned to a sharp focus on AI and the Fed’s interest rate policy.

Case in point: Oil prices continued to fall a little on Tuesday morning, as traders cheered apparent progress in peace negotiations.

The-CNN-Wire
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