As Nikkei Bleeds, Kioxia’s Boom-to-Bust Highlights Dangers of This AI Cycle

Japan’s Nikkei 225 sank as much as 4.4% on Friday, July 17, leading a broad Asian tech selloff. Investors dumped chip stocks tied to the artificial intelligence boom. The index fell to 63,896.48, extending losses from earlier in the week.

Chip-equipment maker Advantest and tech investor SoftBank each lost around nine percent. Taiwan’s Taiex shed four percent as TSMC retreated more than three percent, even after posting record quarterly profit. However, the big story for Japanese stocks is Kioxia

Kioxia’s Reversal

Kioxia, the memory chipmaker plunged near 16% on Friday alone. That extends a slide that has erased 44% of its value in a single month.

In a short space of time, Kioxia rose to the top of Japan’s market, only to slip down rapidly. Image Source: Trading View

A rally of more than 600% since January pushed Kioxia briefly past Toyota to become Japan’s most valuable company in mid-June. It has since dropped to fourth place. The slide has wiped out roughly ¥30 trillion, or $185 billion, in market value.

Daiwa Securities chief strategist Yugo Tsuboi said the chip sector remains prone to boom-bust cycles.

“The chip sector is vulnerable to the silicon cycle, and we’ve seen this pattern many times before.”

Tsuboi pointed to rising scrutiny of Chinese memory chipmakers as one factor. He also noted signs that global memory prices may be stabilizing, which makes further earnings upgrades harder to justify.

Cracks Beneath the Rally

Other factors are adding to the pressure that Kioxia has faced in the relative short term. Last week, Bain Capital exited its entire position in the memory chipmaker. Many investors saw that as a signal that the chip cycle is peaking. Japanese retail traders also hold heavy leveraged positions, which leaves the stock exposed if selling accelerates.

Kioxia only listed in 2024. Since then, its shares became the best performer on the MSCI World Index before this month’s reversal.

Despite the collapse, analysts still forecast roughly a 118% return for Kioxia over the next 12 months. The Topix index’s October reshuffle should also draw fresh passive fund inflows into the stock.

A Warning for the Wider AI Trade

Kioxia’s reversal mirrors a broader repricing across the sector. A Wall Street gauge of chip stocks slumped more than four percent Thursday and concerns over TSMC’s AI spending overshadowed an otherwise solid earnings outlook.

Traders have grown more skeptical of the AI trade in recent months. They are rotating out of richly valued chip names and into sectors that have lagged. The episode follows a similar pattern to Japan’s broader AI selloff earlier this month.

The Nikkei has shed trillions of yen in value over three weeks.

Read the article at BeInCrypto