A semiconductor sector rout occurred on July 27-28 as market confidence in sustained AI spending cracked. SK Hynix fell 13% and Samsung dropped 10% in a single session, dragging down South Korea’s Kospi index by 9%. Chipmakers from Taiwan to the US are under pressure as institutional investors reassess valuations based on assumptions of endless AI spending growth. South Korea’s chip sector absorbed the heaviest blows, with SK Hynix, which supplies memory chips to data center operators, seeing its stock crater as clients signaled they might slow purchasing. Japan’s chip-equipment suppliers also felt pressure as investors worried that AI-driven capacity additions would slow if cloud spending moderates. The semiconductor sector’s 2026 rally rested on the premise that AI adoption will accelerate indefinitely, requiring exponential growth in chip production, with Nvidia’s $750B deal announcement and TSMC’s record numbers seeming to confirm this. However, investors are questioning what happens if AI adoption plateaus, if companies build AI capability without generating ROI, and who holds excess chip inventory. Chip prices have already begun reflecting oversupply in memory segments, and if data center operators continue overspending relative to actual AI workload demand, inventory buildup and price compression could occur later in 2026.