South Korea once again dictated sentiment after Samsung Electronics, the world’s largest memory-chip maker, reported another quarter of record operating profit

Asian stocks retreated on Tuesday as investors questioned whether future earnings growth can justify elevated artificial intelligence-related valuations, sending semiconductor shares lower despite Samsung Electronics posting another quarter of record profit.

Broader risk sentiment remained relatively stable, but renewed selling in Asia’s AI supply chain dominated trading after Samsung’s earnings failed to dispel concerns over whether soaring investment in artificial intelligence infrastructure can continue to generate returns that justify the sector’s rich valuations.

South Korea once again dictated sentiment after Samsung Electronics, the world’s largest memory-chip maker, reported another quarter of record operating profit, underscoring continued demand for high-bandwidth memory chips used in artificial intelligence servers.

Samsung shares slipped over 8% after the results. The selling dragged the KOSPI down 6.9%, making it the worst-performing major benchmark.

The selloff followed a powerful rally across semiconductor shares in recent months, with investors increasingly debating whether future earnings growth can keep pace with current valuations after hyperscalers committed hundreds of billions of dollars to AI infrastructure.

The fear is that if investments moderate over time, memory demand growth could slow and affect the profit outlook for chipmakers, said Vasu Menon, Managing Director of Investment Strategy at OCBC.

Menon said investors were increasingly looking beyond Samsung’s strong quarterly earnings toward the sustainability of record memory-chip profits, while recurring concerns over whether hyperscalers will ultimately generate sufficient returns on AI spending continue to cloud sentiment across the semiconductor sector.

The weakness spread across the broader semiconductor supply chain. SK Hynix Inc declined over 8%, while Nikkei 225 shed 1.6%. The broader TOPIX slid 0.2%.

Selling spread across Asia’s AI hardware supply chain beyond South Korea’s memory-chip makers. Hon Hai Precision Industry Co Ltd declined 1.7% despite reporting stronger-than-expected June and second-quarter revenue, while Taiwan’s MediaTek Inc slipped almost 3%.

Japan’s Murata Mfg Co tumbled 8.3%. The broader MSCI Asia Pacific Index dipped over 1%.

Mainland Chinese equities also weakened, with the Shanghai Shenzhen CSI 300 dropping 1% and the Shanghai Composite declining 1.2%, while Hang Seng tumbled 0.4%.

Nifty 50 index opened flat, while the Jakarta Stock Exchange Composite Index added 0.4%. STI jumped 0.7%, although S&P/ASX 200 slid 0.4% and KLCI edged down 0.2%.

Attention is now shifting from corporate earnings to a busy week of macro events that could shape expectations for monetary policy across Asia.

Thailand’s June inflation slowed to 2.4% in June from 2.8%, broadly in line with expectations as lower energy costs helped ease price pressures.

Investors will next watch Philippines and Taiwan CPI data due later this week, followed by China’s June inflation report and Bank Negara Malaysia’s policy decision on Thursday. The Reserve Bank of New Zealand is also scheduled to announce its policy decision on Wednesday, with markets broadly expecting a 25-basis-point rate increase after policymakers adopted a more hawkish stance in recent months.