Why Asian Stock Markets Crashed on Thursday: Chip Rout, TSMC Earnings, and U.S.-Iran Tensions Explained

Renewed doubts about the sustainability of the AI buildout boom were fueled by Meta Platforms' plan to develop a business selling access to AI computing power, which raised worries about overcapacity . This fear echoed through the sector, hitting chipmakers despite strong underlying demand.

TSMC's Record Earnings Couldn't Stem the Tide

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, reported a 77% increase in second-quarter profit—well above analysts' expectations . On paper, the results "blew past expectations," but investors' already-lofty expectations were not cleared .

TSMC shares fell as much as 4.5% in Taipei after it raised its spending and revenue projections for this year . The selloff gathered pace as concerns over heavy AI infrastructure spending and a weaker outlook for profitability took hold . Some analysts and investors highlighted worries over rising costs in addition to fatigue over the yearslong AI boom . Strong earnings were simply not strong enough to reverse the broader negative sentiment .

U.S.-Iran Geopolitical Risks Added a Fresh Layer of Uncertainty

Escalating conflict near the Strait of Hormuz added a fresh layer of uncertainty. Renewed tit-for-tat U.S. strikes on Iran and the end of the fragile ceasefire pushed crude oil prices higher and drove investors away from risk assets . President Trump declared an end to the ceasefire at the NATO summit in Ankara, leading to a surge in Brent crude oil prices above $80 a barrel . The U.S. military attacked dozens of targets along the Iranian coastline in retaliation for Iranian attacks on vessels trying to transit the strait .

The geopolitical risk weighed on sentiment across the region, particularly in energy-sensitive markets, and was cited alongside the chip rout as a key reason for the Thursday decline in Asian equities . Gulf stock markets also extended losses amid the rising tensions .

Sector-Specific Volatility in South Korea and Japan

South Korea (KOSPI): Extreme Concentration Risk Exposed

The KOSPI has been the hardest-hit major Asian index, having entered bear territory in July after a series of "Black Thursday" sessions . On July 16, the index fell sharply again (down approximately 5% in various sessions) .

The damage was concentrated in two stocks: Samsung Electronics and SK Hynix, which together make up roughly half the KOSPI's market capitalization . Memory chip maker SK Hynix lost 7.7% and Samsung dropped 6.4% on Thursday, following patterns established in prior sessions where Samsung fell more than 7% and SK Hynix more than 9% .

South Korea's technology heavyweights bore the brunt of the regional selloff, with SK Hynix falling to its lowest levels as investors questioned how long the chip boom can last . The KOSPI's decline was so severe that it triggered circuit breakers on multiple occasions throughout July .

Japan (Nikkei 225): Chips Lead the Decline Into Correction

Japan's Nikkei 225 fell 2.7% on Thursday and subsequently slid into correction territory on Friday, pushed lower by the chip selloff and Middle East tensions . The index fell as much as 1.5% on Thursday to 69,443.16, with chip-equipment makers leading the decline .

Japanese semiconductor suppliers and tech heavyweights tracked the regional rout. The "Samsung shock" from earlier in July—triggered by Samsung Electronics' weak preliminary earnings report—had already infected Japanese chip stocks, leading to a second consecutive day of heavy declines . Tokyo Electron shed 5.6% and other chip-equipment makers were among the biggest drags on the Nikkei .

The selloff spilled into Friday, with SoftBank closing 9% lower, Tokyo Electron losing over 8%, and Advantest sliding 7.2%, tracking steep overnight losses on Wall Street .

Summary of the Causal Chain

The Broader Context: A Correction in a High-Flying Sector

The Thursday selloff did not happen in isolation. It was part of a broader rotation out of tech stocks that had been building for weeks. The KOSPI had already fallen more than 20% from its June 19 record high, entering bear territory as global investors soured on AI plays . The Philadelphia SE Semiconductor Index's 4.3% overnight drop was the culmination of a weeks-long decline driven by AI overcapacity worries .

Investors this week rotated out of semiconductor plays into other sectors such as banking after robust earnings from major lenders, leaving Asia particularly vulnerable to the selloff given its heavy concentration in chip stocks . The selloff spread from Asia to the U.S., with equity indexes around the world falling on Thursday as investors offloaded heavyweight chip stocks .

Bottom line: The Thursday selloff was primarily a semiconductor-driven correction amplified by geopolitical risk and extreme concentration risk in the Korean and Japanese markets, where a handful of chip stocks dominate the benchmarks. TSMC's strong earnings were not strong enough to reverse the broader negative sentiment around AI spending sustainability and U.S.-Iran-related risk aversion.