Why are technology stocks plummeting around the world this Tuesday?

At 8:49 a.m. in New York, Nasdaq 100 futures fell nearly 3%, while S&P 500 futures fell 1.4%.

A sub-index of Asian technology stocks tumbled, ending an eight-day rising streak. South Korea’s Kospi Index fell 10%, triggering an automatic trading halt mechanism, after a local media report said SK Hynix Inc. is scaling back production expansion of memory chips for artificial intelligence and shifting focus to DRAM, a cheaper technology.

Shares of SK Hynix and Samsung Electronics Co. plunged more than 10%. The sharp decline in major Korean semiconductor companies suggests investors are rushing to cash in on recent gains, a warning sign for U.S. technology stocks.

“Any headline that could be interpreted as ‘demand for AI memory may be reaching a plateau’ sells out quickly now,” said Amanda Lyons, head of research at Energy Group Capital. “The vulnerability is in the positioning and valuation, not in the implementation.”

Tuesday’s moves follow the previous session’s selling spree from American tech giants, amid doubts about hyperscalers’ colossal spending on artificial intelligence. In another scenario, SpaceX shares fell to their lowest level since the first day of trading after Elon Musk’s rocket company began a sale of investment-grade bonds. Shares fell as much as 4% in pre-market trading on Tuesday.

The rapid expansion of AI data centers has led to severe pressure on more traditional memory chips, including the DRAM products used in everything from cellphones and computers to electric vehicles. Mark Li, a Bernstein analyst who follows the semiconductor sector, warned earlier this year that memory chip prices are rising “parabolically.”

Vey-Sern Ling, managing director of Union Bancaire Privee in Singapore, said that if SK Hynix is ​​directing its investments into DRAM, it likely reflects the company’s view of the profit potential in that market.

“It just means they think the profit margins on low-cost DRAM are better than HBM4,” he said, referring to high-bandwidth memory chips. “There is still a serious global memory shortage.”

SK Hynix declined to comment.

The appreciation of US technology stocks lost momentum this month, with investors worried about possible overvaluation of prices. Still, the Nasdaq 100 index remains up more than 30% compared with late March, and some market participants have said this pause is likely to be short-lived.

“A market decline, even with high volatility, is healthy and will provide entry points for other investors,” said David Kruk, head of trading at La Financière de l’Echiquier.

However, David Rainville, lead manager of the Sycomore Sustainable Tech fund, noted that swings in Korean stocks could be exacerbated due to heavy participation from individual investors.

Attention will soon turn to Micron Technology Inc.’s quarterly results, which will be released on Wednesday. The company’s shares have been the best performers on the Philadelphia Semiconductor Index this year, gaining more than 300% since January.

“Many investors are sitting on big profits in their AI stocks, and any instability could lead them to reduce their positions to lock in those gains,” said Jian Shi Cortesi, fund manager at Gam Investment Management. “Right now, technology stocks are also particularly sensitive to the interest rate outlook and potential rate hikes by the Fed.”