Global stock markets experienced a downturn last week, driven by a selloff in artificial intelligence and chipmaker stocks, but analysts say the AI bubble has not yet burst. The decline began on June 22 when Alphabet shares fell sharply after several high-profile leaders announced departures from Deepmind, Google's elite AI research unit. The following day, South Korean chipmakers Samsung and SK Hynix saw their shares drop by double digits, triggering a trading halt on the Kospi index.
Chipmakers Drive Market Turmoil
Investors grew concerned over Samsung and SK Hynix's combined $500bn spending plans and signs of weakening demand for their high-bandwidth memory products from other AI players. The two companies account for half of the value of South Korea's Kospi index, giving them outsized influence over the country's economy. Despite the recent dip, the Kospi index is up 125% this year, its strongest first half since at least 1990, with Samsung's share price jumping 183% year-to-date and SK Hynix's rising 310%.
The selloff also hit SpaceX, which owns Elon Musk's xAI, despite not being a chipmaker. SpaceX's stock dropped by double digits less than two weeks after its market debut, as investors balked at the company's plan to raise $20bn in a bond sale after already securing over $85bn through its IPO. As a result, Musk lost his status as the world's first trillionaire, and OpenAI is likely to delay its stock market debut until next year, according to the New York Times.
Impact on Retirement Accounts and Electronics Prices
The market moves have fundamental consequences for everyday consumers. US retirement accounts tied to the Nasdaq exchange, which is heavily weighted toward tech stocks, have been weighed down by the selloff. Meanwhile, Apple blamed recent price hikes on the rising cost of computer memory, as Samsung and SK Hynix prioritize sales to AI buyers due to higher profit margins.
Guardian economics writer Philip Inman commented: "Every couple of decades, investors will ask themselves how long can the stock market keep climbing." He noted that doomsayers of a popping AI bubble are claiming victory even as professional investors remain "hardened to anything that gets in the way of pumping more cash into stock markets."
Recovery Signs Amid Panic
Despite the downturn, there are signs of recovery. US chipmaker Micron reported stellar quarterly earnings, with year-over-year revenue quadrupling and its stock up 300% this year, shattering Wall Street's expectations. The recent dip has dented but not erased the substantial gains seen in the chip sector since January.
California Billionaire Tax Advances
In other news, California Governor Gavin Newsom has proposed a federal minimum tax on individuals with a net worth above $100m, as a counterproposal to the California Billionaire Tax Act set to appear on the November ballot. The ballot initiative would levy a one-time 5% tax on residents worth more than $1bn. Early polls show the initiative is popular among voters, but it faces strong opposition from Silicon Valley, with some tech billionaires, including Google co-founders Sergey Brin and Larry Page, threatening to leave the state.
Newsom's federal wealth tax proposal aligns with a leftward shift in the political landscape, following the success of progressive candidates in New York, Seattle, and Washington, DC. However, critics question whether the proposal is a genuine effort to address wealth inequality or a strategic move to avoid taxing California's wealthiest residents while seizing the narrative.
