Asia's tech sector plummeted following news that Samsung's profits had increased 19-fold. What's going on?

Samsung Electronics’ quarterly revenue grew more than 19-fold, but that wasn’t enough for investors accustomed to impressive figures from AI chip suppliers. Tech stocks in Asia plummeted, including Samsung’s own shares: The earnings report from the largest memory chip manufacturer prompted investors to take profits following the chipmakers’ rally in the first half of the year and shift capital to less popular sectors where the risk of earnings disappointment is lower, according to Bloomberg.

According to preliminary data from Samsung released on July 7, the company’s operating profit soared to a record 89.4 trillion won ($58 billion) thanks to a boom in data center construction. Despite a 19-fold increase in the figure, it exceeded the consensus estimate by only 6%, Bloomberg notes. Revenue, according to Samsung’s statement, likely rose 129% year-over-year.

Samsung shares plummeted by more than 10% during trading in Seoul, dragging down competitors, including South Korea’s SK Hynix and Japan’s Kioxia. Their share prices fell by 11% and 13%, respectively. The MSCI Asian Technology Index fell 3%. Samsung’s market capitalization shrank by more than $100 billion, according to Reuters.

Analysts attribute the weakness in the stock to relatively high expectations for Samsung’s earnings report and concerns about a slowdown in the pace of data center construction, Reuters reports. “Samsung’s strong results were expected and had already been priced in after the stock surged ahead of the earnings release. Investors are concerned about the sustainability of the AI boom and the risk of a slowdown in AI infrastructure spending by major U.S. tech companies,” noted Albert Yong, managing partner at Petra Capital Management (quoted by Reuters). Reports of spending on new capacity, technology delays, and rising debt—which until recently had barely troubled the market—are now giving investors a reason to sell tech stocks, according to Bloomberg.

“Today, the ‘sell on the news’ principle came into play: investors had already priced in extremely high expectations,” said Tim Waterer, chief market analyst at KCM Trade. “Even strong results aren’t enough to satisfy the market when valuations are inflated and the rotation [of investment capital into other sectors] is in full swing.”

According to Hibi Chen, senior market analyst at Vantage Global Prime, investors are looking for “cleaner (fairer—Oninvest) valuations and less crowded positions” in stocks outside the technology sector. “But this isn’t the end of the semiconductor trend: if memory prices continue to rise or the next surprise in chipmakers’ earnings reports turns out to be significant, money could flow back to the leaders very quickly, as the structural story around AI is still very much alive,” she emphasized.

Although demand for memory chips has surged, the market is still trying to figure out how this upswing will end: whether the boom will be followed by a typical downturn, or whether AI is creating a longer-lasting “supercycle,” according to Bloomberg.

Following the release of Samsung’s preliminary results, the most pressing question for investors is whether the sell-off in the stock will intensify or, conversely, buying will begin due to expectations of an improving market environment, according to analyst Han Ji-yeon of Kiwoom Securities, as reported by the Korean publication Maeil Business. Whether the entire stock market can avoid a decline will depend on whether Korean companies—and especially chipmakers—can demonstrate solid earnings growth this week, the expert noted.

This article was AI-translated and verified by a human editor