ASML panic and AI circular funding

Historic Tech Plunge: Asian Markets Tumble Amid Fears of Unsustainable AI Spending and New Chinese Rivals

Wed, July 29 2026 /Mpelembe Media/ — The summer of 2026 witnessed a profound global market recalibration as major technology and semiconductor stocks faced a severe sell-off, pushing the tech-heavy Nasdaq-100 index into correction territory. This downturn reflected a fundamental shift in investor sentiment, moving from speculative optimism surrounding artificial intelligence to a rigorous demand for tangible monetization and balance sheet stability. The correction was not triggered by a singular event, but rather by a confluence of escalating capital expenditures, systemic credit risks tied to circular financing, and significant geopolitical shifts in the Asian semiconductor supply chain.

A primary driver of the market anxiety was the astronomical scale of infrastructure spending by hyperscale technology companies. Alphabet shocked the market during its second-quarter earnings by reporting a record $44.9 billion in capital expenditures, which eclipsed its $39.1 billion in operating cash flow and resulted in a negative free cash flow of $5.9 billion. This marked the first time Alphabet reported a quarterly free cash flow deficit since its initial public offering in 2004. The sheer scale of this investment, with approximately 60% allocated to servers and 40% to data centers and networking equipment, underscored the massive financial strain of the AI arms race. Investors were further rattled when Alphabet raised its full-year 2026 capital expenditure guidance to between $195 billion and $205 billion, while warning of even more significant spending increases in 2027. Similarly, Taiwan Semiconductor Manufacturing Company (TSMC) delivered record quarterly revenue of $40.2 billion and operating margins of 60.3%, yet saw its stock heavily sold off after raising its 2026 capital expenditure budget to between $60 billion and $64 billion. This highlighted a growing market realization that immense spending on new facilities and advanced processing nodes was fundamentally altering long-term free cash flow models across the sector.

Beyond direct capital expenditures, the market grew deeply concerned over complex circular financing arrangements within the AI ecosystem. Reports emerged that Nvidia was in advanced talks to guarantee up to $250 billion in financing for OpenAI to lease a 10-gigawatt data center campus in southern Ohio. Coupled with a separate $500 billion data center partnership with South Korea’s SK Group, Nvidia announced over $750 billion in potential AI-related deals. However, instead of celebrating these massive figures, the credit markets reacted with alarm to the concept of a chip vendor effectively underwriting the debt of its own major customers to stimulate demand. The cost to insure Nvidia’s bonds against default spiked, with its five-year credit default swap spread hitting a record high, reflecting fears that these off-balance-sheet commitments artificially inflate market appetite and create systemic vulnerability. Fitch Ratings explicitly warned that the AI boom and its associated circular credit risks were emerging as major threats to global financial stability.

Concurrently, the global semiconductor landscape was severely disrupted by rapid advancements in China’s domestic supply chain. Shares of Dutch equipment manufacturer ASML plummeted by 11% after reports surfaced that a state-backed Chinese firm, Shanghai Aishengna Electronic Technology Group, had begun mass-producing homegrown immersion deep-ultraviolet (DUV) lithography machines. This breakthrough directly challenged ASML’s dominance in the Chinese market, erasing approximately €55 billion in its market value over a brief period. Adding to the disruption, China’s leading memory chipmaker, ChangXin Memory Technologies (CXMT), completed a blockbuster initial public offering on the Shanghai Stock Exchange, surging 466% on its debut to reach a market capitalization of nearly $500 billion. CXMT’s record-breaking $8.6 billion fundraising signaled a major competitive threat to established memory giants in the West and South Korea. In response to this looming oversupply and intensified competition, shares of South Korean memory leaders Samsung Electronics and SK Hynix plunged by 13.4% and 14.7% respectively, dragging the broader KOSPI index down almost 11% to a three-month low.

Ultimately, this historic tech sell-off demonstrates that the artificial intelligence sector is undergoing a harsh reality check. While underlying AI capabilities continue to advance, investors are increasingly rotating capital out of highly concentrated, capital-intensive tech stocks and into defensive, value-oriented sectors that offer more reasonable valuations. The market is signaling that future infrastructure build-outs must be justified by immediate revenue generation and tangible returns, rather than relying on endless cycles of vendor-financed debt and speculative growth forecasts.

The €55 Billion Panic: Why the Market is Wrong About the Chip Wars

In the final week of July 2026, the global semiconductor market provided a masterclass in the perils of headline-driven algorithmic sell-offs. Following a single report regarding a “breakthrough” in Shanghai, roughly €55 billion in market value evaporated from ASML in just five trading days. The catalyst was a rumored advancement from Shanghai Aishengna Electronic Technology Group—a little-known, state-backed entity—which reportedly cracked the code on mass-producing domestic immersion Deep Ultraviolet (DUV) lithography machines.To the uninitiated, this looked like the beginning of the end for Western lithography dominance. To a seasoned analyst, however, the wipeout was a textbook case of market overreaction. While China’s drive for self-sufficiency is real, the distance between a successful prototype and the industrial-scale reliability required by global foundries remains a vast, unbridged chasm.

1. The DUV Breakthrough is a “Legacy” Success, Not a Coup

The panic centered on reports that Aishengna had begun delivering immersion DUV tools to domestic giants like SMIC and Hua Hong Semiconductor. However, the market’s knee-jerk reaction ignored the fundamental hierarchy of chipmaking. DUV is the industry’s workhorse for “legacy” nodes—the chips found in cars and appliances. It is not, and never will be, Extreme Ultraviolet (EUV) lithography, the “magic” held exclusively by ASML that is required to print the cutting-edge circuits for AI and high-performance computing.Furthermore, investors often mistake a production milestone for commercial parity. In the semiconductor world, the graveyard of startups is filled with firms that could build a machine but could not achieve High Volume Manufacturing (HVM). As analysts from JP Morgan noted regarding the news:”Producing a handful of immersion DUV tools is not the same as producing tools that can be used for high-volume manufacturing, where yield, overlay, throughput and reliability over thousands of wafer runs are what matter.”For a foundry, a machine is only as good as its “yield”—the percentage of functional chips per wafer. Until Aishengna proves it can match ASML’s reliability over millions of exposures, it remains a strategic insurance policy for Beijing rather than a commercial threat to Veldhoven.

2. The 13% Revenue Drop Was Already “Baked In”

A secondary driver of the July panic was the projection that ASML’s China-derived revenue would slide significantly. However, a glance at the firm’s forward guidance reveals that this was not a loss to a domestic competitor, but a calculated result of geopolitical friction.

Year | ASML Projected China Revenue Share
2025 | 33%
2026 | 20%

This 13-percentage-point decline was forecasted long before Aishengna’s name hit the wires. It is the direct consequence of Dutch and U.S. export restrictions that have systematically narrowed the list of equipment ASML is legally permitted to ship to Chinese ports. There is a profound irony here: China is not choosing to build its own DUV machines to “beat” ASML; it is being forced to build them because the West has effectively ended the transaction.

3. ASML’s AI Moat is Still Made of EUV “Magic”

The broader “AI Revolution” is entirely beholden to leading-edge nodes, which remain the sole province of EUV technology. ASML retains a total global monopoly on these systems. The triumvirate of advanced manufacturing—TSMC, Samsung, and Intel—has no credible alternative.This monopoly is the essential foundation for the massive infrastructure projects currently being planned in the West. If you are a hyperscaler or an AI lab preparing to spend half a trillion dollars on a single site, you cannot afford the risk of legacy-grade domestic Chinese tools. You are, quite literally, locked into the ASML ecosystem.

4. The $500 Billion Data Center Power Play

To understand why the ASML moat is so resilient, one must look at the sheer scale of the projects it enables. Negotiations are currently underway between Nvidia and OpenAI for a staggering 10-gigawatt data center project in southern Ohio. This represents a paradigm shift: OpenAI is moving from “renting” capacity from Microsoft to “owning” its sovereign infrastructure.The financial and geopolitical weight of this deal is unprecedented:

$250 Billion:  Financing guarantee provided by Nvidia for data center leases and debt.

$350 Billion:  Negotiated financing for OpenAI’s internal hardware and chip purchases.

$500 Billion+:  Total projected cost, making it the most expensive single infrastructure project in history.

10 Gigawatts:  Total power capacity, with the first 800 megawatts slated for 2028.The geopolitics of this “Power Play” are as complex as the technology. The project’s energy supply is being funded separately by Japan under a trade deal tied to a  $33 billion  investment in a natural gas plant. Crucially, access to this project is not determined by the market, but by Washington. U.S. Commerce Secretary Howard Lutnick currently serves as the gatekeeper, deciding which firms—including Anthropic, Microsoft, and Google—get a seat at the table.

5. Memory is the New Geopolitical Frontline

While the West controls the “Logic” of AI, China is successfully retreating into segments where it can still compete. This was evidenced by the blockbuster IPO of ChangXin Memory Technologies (CXMT) in 2026. Raising  RMB 57.9 billion , it was the largest A-share debut of the year, with stock prices surging  466%  upon floating.CXMT now ranks 4th globally in DRAM capacity. For strategic investors, this signals where Chinese domestic capital is flowing: into the “safe” segments of memory and legacy nodes. Because they are locked out of the high-end EUV logic market, Beijing is flooding the DRAM and DUV sectors with liquidity, effectively building a parallel, albeit less advanced, semiconductor ecosystem.

Conclusion: The Future of the “Circular AI Economy”

As we approach the end of 2026, the semiconductor landscape is defined by two diverging realities. China is building expensive, isolated silos to ensure it can at least produce the chips for its cars and industrial sensors. Meanwhile, in the West, we are seeing the emergence of a “Circular AI Economy”—a valuation loop where Nvidia effectively finances its own customers (OpenAI) to buy its own chips, underpinned by ASML’s technology.This circular funding creates a unique volatility risk. The €55 billion panic in July was a reminder of how easily the market can be spooked by the “China Threat.” However, the real risk to the market may not be a domestic DUV machine from Shanghai, but the sustainability of $500 billion infrastructure deals financed by the very vendors who stand to profit from them.In a world where chips are the new oil, true self-sufficiency may be a fantasy for both sides. We are left to wonder: are we actually building a future of boundless intelligence, or are we simply constructing the world’s most expensive silos?