The July 28, 2026 Global Chip Selloff: How Circular AI Fears, China's DUV Breakthrough, and NAND Oversupply Wiped Out Billions

On July 28, 2026, a deepening global selloff in semiconductor stocks accelerated across U.S. and Asian markets, driven by a confluence of fears over China's domestic chipmaking advances, the sustainability of AI spending, and the 'circular' nature of massive financing deals between Nvidia and OpenAI. Japan's Nikkei 225 and Topix indexes both suffered sharp losses, with the price-weighted Nikkei hit disproportionately hard by selling in its largest semiconductor components.

Japan's Nikkei 225 and Topix Reaction

The Nikkei 225 closed at 62,364.92, down 3.95% — its lowest close since May 21 — after at one point falling more than 4% intraday . The index briefly plunged more than 2,000 yen at the opening bell on a wave of sell orders targeting AI and semiconductor stocks . As of Tuesday afternoon, the Nikkei had fallen 14.5% from its June record, and the weak yen could not halt the decline because selling was concentrated in high-priced semiconductor shares .

The broader Topix index fell 2.52% to 3,963.59 . Other reports placed the Topix decline at 2.3% to around 3,973 . The divergence — the Nikkei falling nearly 4% while the Topix fell roughly 2.3–2.5% — reflects the price-weighted Nikkei's outsized exposure to a few expensive chip stocks.

Concentrated Selling in Nikkei Semiconductor Heavyweights

Selling fell hardest on the high-priced semiconductor names that dominate the price-weighted Nikkei 225 . Key stocks hit by significant declines included Advantest, Tokyo Electron, and Kioxia, with Kioxia plunging 18% and SoftBank dropping over 6% as the sector faced a new wave of selling . Tokyo Electron dropped more than 9%, and Advantest slid over 8% .

Nvidia's Reported $250 Billion OpenAI Talks and 'Circular' AI Fears

Over the weekend of July 25–26, the Wall Street Journal reported that Nvidia is in talks to provide a roughly $250 billion financing backstop for OpenAI to help the ChatGPT maker lease a 10-gigawatt data center project developed by SoftBank's energy subsidiary . Nvidia was also separately involved in financing $350 billion of OpenAI's purchases of its own chips, part of a broader set of deals worth more than $750 billion .

These reports reignited 'circular AI' fears — the concern that Nvidia is effectively lending money to OpenAI so OpenAI can buy Nvidia chips, inflating demand without genuine end-user revenue to justify it . The circular-deal structure had been flagged earlier in 2026 by Bloomberg as a key risk underpinning the AI boom . On Monday, July 27, Nvidia fell 5% on Wall Street , and by Tuesday the narrative had spread to Asian markets.

China's Mass Production of Domestic DUV Lithography Equipment

On July 27, a report by The Information revealed that a Shanghai-based, state-backed company had begun mass-producing immersion deep ultraviolet (DUV) lithography machines, a critical chipmaking tool long dominated by Dutch supplier ASML . The machines are expected to be delivered this year to leading Chinese chipmakers including SMIC, Hua Hong, and CXMT .

The report hit ASML shares hard (down ~6.8%) and dragged U.S. semiconductor equipment makers Applied Materials, Lam Research, and KLA Corp sharply lower . By Tuesday's Asia session, the news compounded the selloff as investors reassessed the competitive threat to Western and Japanese chip-equipment makers .

NAND Oversupply and Memory-Chip Pressure

Memory chip stocks were already under severe pressure before July 28. On Monday, SanDisk plunged 11% and Micron fell sharply, with the Philadelphia Semiconductor Index dropping 4.2% . South Korean memory giants were hammered again on Tuesday: SK Hynix slumped 11% and Samsung Electronics tumbled more than 8% . The rout was deepened by concerns that Chinese memory maker CXMT (ChangXin Memory Technologies) was ramping production just as NAND oversupply was already weighing on pricing .

Broader AI Infrastructure Return Concerns

A Bloomberg gauge of Asian semiconductor shares slumped as much as 7.5% on Tuesday . The selloff reflected mounting investor questions about whether massive capital expenditures on AI data centers would produce adequate returns . Nasdaq 100 futures dropped 1% in pre-market U.S. trading . The circular-funding concern — that AI demand was being manufactured by chipmakers lending to their own customers — was the underlying narrative tying all the triggers together: the Nvidia-OpenAI deal, the China DUV breakthrough (which threatens the equipment makers' pricing power), and the memory glut (which signals demand may be weaker than supply chains assumed) .