Shares of semiconductor companies, particularly South Korea’s SK Hynix, continued to decline sharply following the company’s recent earnings report that fell short of market expectations, fueling broader concerns about the sustainability of the artificial intelligence (AI) driven chip demand boom.

SK Hynix, the world’s second-largest memory-chip manufacturer, reported a 557 percent increase in operating profit to a record Won60.5 trillion (approximately $42 billion) for the second quarter ended June 30 compared with the previous year. However, this performance missed analysts’ forecasts, which had projected operating profit of around Won64 trillion and higher sales. The company’s sales rose 257 percent to Won79.3 trillion but still fell below estimates. Following the report, SK Hynix shares plunged nearly 20 percent before closing down about 10 percent in Seoul. The Kospi index also dropped 6 percent after declining as much as 13 percent earlier in the session, bringing its weekly losses to 15 percent. Samsung Electronics, SK Hynix’s larger rival, declined 5.2 percent on the day.

The earnings miss has raised doubts about SK Hynix’s exposure to high-bandwidth memory chips used in AI hardware, which slowed its gains compared with more conventional memory chip segments where prices have risen. Analysts noted that rapid price increases in memory chips might eventually lead customers to curb usage or seek cheaper alternatives, potentially dampening demand.

Investors have also been unsettled by reports that China may soon mass-produce its own deep ultraviolet (DUV) lithography machines, essential technology for advanced chip manufacturing, raising concerns about increased competition in the semiconductor industry. In response to the market volatility, South Korean regulators announced new rules limiting access to leveraged exchange traded funds (ETFs), which have become popular among retail investors but are seen as amplifying price swings.

The sell-off in the semiconductor sector has not been limited to South Korea. In the United States, tech heavyweights and chip-related stocks continued to experience declines, pushing the Nasdaq 100 index deeper into correction territory, down more than 10 percent from its June peak. Shares in companies such as Sandisk, Arm Holdings, and Advanced Micro Devices also saw significant losses. Meanwhile, Tokyo’s Nikkei 225 index fell 1.5 percent with semiconductor component and memory-chip makers facing notable declines.

Market experts cautioned that while SK Hynix’s shares now trade at a relatively low multiple based on long-term earnings forecasts, the outlook depends heavily on sustained demand growth for memory chips. The company plans to invest around $130 billion through 2028—more than four times its spending over the past three years—highlighting confidence in future growth. SK Hynix has also pursued long-term contracts with key customers to stabilize revenue streams.

However, there is recognition that the semiconductor industry has historically been cyclical and prone to sharp downturns following booms. Some analysts pointed out risks arising from potential slowing in demand from major AI and data-center customers, as concerns about energy usage and environmental impacts lead to regulatory measures, such as limits on new data center construction in places like New York. A moderation or reversal in AI spending trends could weigh heavily on chipmakers’ profitability.

Overall, investors are adjusting their expectations, acknowledging that the recent surge in chipmaker shares may not be sustainable without consistent demand growth and pricing support. The sector appears set for increased volatility as market participants reassess the balance between the promise of AI-driven chip demand and the risks of overcapacity and pricing pressure.