"We’re seeing history repeat itself," said a market strategist as AI chip shares suffered their steepest drop in over a year. Moonshot AI's unveiling of Kimi K3, a 2.8 trillion parameter open-source AI model, rattled investors and sent the PHLX Semiconductor Index down 10% over one week, marking its biggest fall since April 2025. The index tumbled into bear market territory, losing more than 20% from recent highs, shaking confidence across the US tech sector.

Stocks of industry leaders like Nvidia, Broadcom, AMD, Arm, Intel, and Micron took significant hits amid the selloff. The ripple effect wasn’t limited to the US; South Korea’s Kospi index plunged nearly 11%, with giants Samsung Electronics and SK Hynix falling 13% and 14% respectively. SK Hynix, a key player in high-bandwidth memory key for AI data centers, bore the brunt of worries surrounding the future demand for their chips. For context, South Korea’s market has been volatile, triggering multiple trading halts this year as seen recently.

The current turmoil echoes the January 2025 crash triggered by DeepSeek’s R1 model release, which wiped about $1 trillion off global tech valuations. Efforts by the US to restrict Chinese access to advanced chips through export controls ironically accelerated China's commitment to building a self-sufficient semiconductor industry. State-backed initiatives in domestic manufacturing now reduce China's reliance on Western suppliers, shifting the whole landscape of semiconductor competition and adding pressure on chipmakers worldwide.

For investors, the selloff also coincided with profit-taking after months of soaring valuations in AI hardware stocks. The AI sector, including the emerging AI-crypto crossover, remains highly speculative, with many betting that expensive compute will sustain demand for specialized chips. However, Moonshot AI’s open-sourcing of such a large-scale model challenges this norm, potentially disrupting hardware demand projections. Traders should watch this evolving dynamic closely as it could reshape not only chip shares but also fuel volatility in AI-related digital assets.

This article is for informational purposes only and does not constitute financial advice.