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

Currency dealers monitor exchange rates as a screen shows South Korea's benchmark stock index (KOSPI) in a foreign exchange dealing room at the Hana Bank headquarters in Seoul on Tuesday. Jade Gao/AFP/Getty Images Tech news Investing Economy Stocks See all topics Facebook Tweet Email Link Threads Link Copied! Follow Volatility has returned to the stock market, and AI is once again the culprit.

The tech-heavy Nasdaq dropped 2.21% and the S&P 500 fell 1.44% Tuesday as investors sold semiconductor chip stocks and other AI-related shares. The Dow, which has less exposure to tech, was down about 0.1%.

The S&P and Nasdaq each had their worst day in about two weeks. The declines came after steep sell-offs in Asia. Nerves about AI quickly spiraled into full-on panic trading in South Korea on Tuesday, where the Kospi index tumbled 10%, 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).

“These big moves are part of a growing trend of rising volatility in tech stocks generally,” James Reilly, senior markets economist at Capital Economics, said in a note. “This volatility is, in our view, evidence of excessive froth and calls into question the sustainability of this rally.”

US markets kicked off the week on a down note, with the Nasdaq falling 1.3% Monday before extending losses Tuesday. The mild US tech-sell off Monday spilled into Asian trading hours, and then the sell-off intensified Tuesday.

Traders’ fear isn’t about anything specific, and there wasn’t any obvious catalyst to lead to such enthusiastic selling. But those nerves continued in the United States, where tech stocks had a rough day. Some investors might be taking profits after strong rallies.

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 less than 1% Tuesday, while SpaceX gained about 1% after fluctuating in volatile trading. Nvidia (NVDA) was about 4% lower, weighing on the broader market. Oracle (ORCL) fell more than 5.5%, putting it down about 27% 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 traders 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 13%. Marvell Technology (MRVL) sank 9%. Traders are awaiting Micron’s quarterly earnings results on Wednesday.

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 more than 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.