AI Chip Stocks Slide and South Korea's Market Plunges 5.5%: What a Tech Sell-Off Could Mean for Your 401(k)

The companies riding the artificial intelligence boom had a rough two days, a reminder of how much of many retirement accounts now depends on a handful of tech stocks.

Stocks tied to the artificial intelligence (AI) boom took a sharp hit on Monday and Tuesday, Oct. 12 and 13, led by companies that make computer memory chips.

In South Korea, home to two of the world's biggest memory makers, the main stock index, the Kospi, fell 5.5% on Tuesday to close at 6,035.35, according to The Korea Herald and the Associated Press. It had been down more than 7% during the day, briefly dropping below 6,000. Samsung Electronics fell 7.4% and SK Hynix plunged about 10%.

The slide followed a weak day for U.S. chip stocks on Monday. Micron fell 3.9%, AMD 2.3%, Broadcom 1.9% and Nvidia 1.3%, the AP reported. The Philadelphia Semiconductor Index, a widely followed basket of chip stocks, fell 2.67% that day, according to The Korea Herald.

If you own an S&P 500 index fund, a target-date fund or a tech fund in your 401(k), you likely own some of these companies. Here's what happened and how to think about it.

Why chip stocks fell

Several worries hit at once.

The first was competition. Reports said Chinese memory chipmaker CXMT has made progress on a new, more compact memory design and plans to launch server memory chips built on it by the end of 2026. That raised concerns it could compete more with Samsung, SK Hynix and Micron, according to the AP and The Korea Herald.

The second was a broader unease about the AI boom itself. Chip stocks have soared over the past few years as tech giants raced to build data centers. The Kospi crossed 9,000 and hit an all-time high in June, the AP reported. When prices run up that fast, investors can become jittery at any sign that growth might slow.

The third was money flowing out of South Korea. Foreign investors sold a net 2.2 trillion won of Korean stocks on Tuesday alone, The Korea Herald reported. Analysts there also pointed to higher interest rates, rising oil prices and global tensions as added pressure. Over five trading sessions, the Kospi has dropped more than 1,000 points from above 7,000.

On the same day, the International Monetary Fund (IMF) listed an AI-related stock market correction as one of the plausible near-term risks to the financial system, alongside a spike in bond yields and a major cyberattack.

How big is this, really?

It's important to keep the moves in perspective. U.S. stocks overall held up fairly well on Monday: the S&P 500 slipped just 0.1% and the Dow rose 0.4%, while the tech-heavy Nasdaq fell 0.4%, the AP reported. U.S. stock futures were slightly higher early Tuesday. Even after its plunge, the Kospi was still up about 51% for the year as of Monday's close, according to The Korea Herald.

In other words, this was a sharp drop for a group of stocks that had risen a lot, not a broad market crash. Sell-offs like this happen regularly, and no one can reliably predict whether they mark the start of a longer decline or a short pause.

What this means for your wallet

For most everyday investors, the biggest question isn't what chip stocks will do next week. It's whether your money is spread out enough that a bad stretch for one industry won't derail your plans.

Many popular funds have become more concentrated in tech than people realize. A small number of very large companies, many of them tied to AI, now make up a big share of broad U.S. stock indexes. That means even a "diversified" index fund can swing more with tech than it used to. If you also own individual tech stocks or a tech-focused fund, your exposure may be higher still.

Here are a few steps to consider. First, look at your 401(k) or IRA and check what your largest holdings are. Most account websites show a breakdown by sector or by fund. Second, compare your mix of stocks, bonds and cash with your goals and timeline. Money you'll need within a few years generally shouldn't be riding on the most volatile corners of the market. Third, if one area has grown into a much bigger slice of your account than you intended, rebalancing, which means selling some of what has grown and buying more of what has lagged, can bring your account back to the mix you chose. Some plans offer automatic rebalancing.

If you're young and investing for retirement decades away, a drop in stock prices can also mean your regular contributions buy more shares at lower prices. Staying consistent with contributions, rather than trying to jump in and out of the market, tends to work better for most people over time. Selling in a panic after a drop can lock in losses.

The bigger picture

The AI boom has driven a large part of the stock market's gains in recent years, which has been good for many retirement savers. But it also means more of people's savings depend on the fortunes of a relatively small group of companies. Days like these are a useful reminder to check that your investments match how much risk you're comfortable with, and to keep an emergency fund in cash so you're never forced to sell investments at a bad time.

This article is for education only and is not financial advice. Everyone's situation is different.