A bad day for chips. Samsung disappointed with a record, China wants to reduce its dependence on Nvidia
In a single day the chip sector took two blows at once - Samsung's record profit $SSNLF failed to convince the market, and news of DeepSeek's own chip only added fuel to the fire.
Sometimes a single day is enough for investors to reassess the whole story they've built up over a year. On Tuesday that happened to the chip sector twice over. First, Samsung's otherwise stellar results disappointed, then came the news that China's DeepSeek is quietly building its own AI chip and suddenly the whole market is asking whether demand for Nvidia's chips $NVDA will grow as fast as it seemed just a few days ago.
The result was a sell-off that spread from Seoul through Amsterdam all the way to Wall Street. Shares of memory makers, chip giants and companies that merely ride on the AI business all fell.
Samsung earned 19x more, the stock fell anyway
Samsung Electronics, the world's largest maker of memory chips, reported an operating profit of around 89.4 trillion won (roughly 58.4 billion dollars). Year on year, that's an increase of over 1,800%. Revenue was expected to rise 129% to 171 trillion won. Even so, the stock closed almost 7% lower.
The explanation is paradoxically simple - the market had such a strong quarter priced in long ago. Samsung's shares have more than doubled this year precisely in anticipation of a similar number, so even a stellar result was no longer enough to trigger further buying.
"Samsung's strong results were widely expected and largely priced into the stock after it rose significantly ahead of the release."
Albert Yong, managing partner at Petra Capital Management
Labor costs also came into play - this year, after union protests, Samsung set aside 10.5% of its chip division's profit for employee bonuses. Without these costs, operating profit would, according to analysts, have exceeded 100 trillion won.
China wants to build its own Nvidia
While investors were still digesting the numbers from Seoul, the second blow arrived - this time from China. According to information from the Reuters agency, DeepSeek, the Chinese AI company famous for its R1 model, is developing its own chip for so-called inference - that is, the phase in which an already trained model answers users' questions.
The project has reportedly been running for about a year, is still in the early stages, and DeepSeek is already in talks with external firms on chip design, manufacturing plants and memory suppliers. The company has also been increasing the number of chip-design engineers in recent months - without posting openings on the usual job portals.
Nvidia's shares reacted to the news with a decline of around 1.5 to 2%. That's not a dramatic figure, but symbolically the news is sensitive - it confirms the trend of leading AI firms increasingly building their own chips instead of buying from Nvidia.
- Last month OpenAI unveiled its own inference chip, Jalapeño, developed with Broadcom $AVGO
- According to earlier Reuters reports, Anthropic is considering a similar step
- DeepSeek would thus join a growing group of firms trying to reduce their dependence on a single supplier
Why it actually matters
Developing a competitive AI chip usually takes years and requires enormous capital - and DeepSeek also faces specific obstacles due to US export restrictions. Chinese chip designers are not allowed to use the most advanced foreign manufacturing plants, and separate restrictions limit China's access to high-bandwidth memory, a key component for inference chips.
Still, the news fits into a broader pattern the market is watching ever more nervously. If more and more large AI firms, from American to Chinese, start building their own hardware, it could over the long term dampen the pace of growth in demand for Nvidia's general-purpose chips, even if in the short term it remains the clear market leader.
"Investors are still worried about the sustainability of the AI boom and the risk of slowing spending by large US technology companies on AI infrastructure."
Lee Min-hee, analyst at BNK Investment & Securities
A sell-off that didn't stay confined to two companies
The nervousness quickly spread across the whole sector. Rival SK Hynix $HY9H.F lost around 6%, America's Micron $MU and Western Digital $WDC wrote off over 7%, and a similar fate befell SanDisk $SNDK.
Europe fared no better - ASML $ASML lost around 7%, Infineon $IFX.DE over 8%, and STMicroelectronics $STM around 6.5%. According to analyst Vasu Menon of OCBC, the sell-off reflects growing doubts about whether the exceptional performance of the memory business can be sustained, if investment in AI infrastructure slows - so the market's attention is shifting from current profits to the question of valuation.
Samsung will publish detailed results with a breakdown by division only on July 30. Until then, the question now moving the entire sector remains open - whether the current boom around AI chips is a new structural trend, or just another round of the classic cycle that is usually followed by a sobering up.
