South Korea's memory chip sector, previously a darling of investors due to soaring AI-related demand, is now facing a reality check. Shares in SK Hynix plunged 10 per cent recently after sales and profits missed fevered forecasts, adding to investor jitters. The Korean chip giant is now down 50 per cent in five weeks, with rivals like Samsung Electronics not far behind.

Despite potentially looking cheap at less than 3 times forecast earnings, the sustainability of these earnings depends on maintaining demand and supply control. Scenarios where chipmakers increase capacity just as demand from tech giants like Google or Anthropic slows are plausible. Chipmakers have a history of turning booms into busts, and SK Hynix's significant investment of $130bn through 2028 highlights the stakes.

The market is now acknowledging that the sector is not a guaranteed upward trajectory. While SK Hynix may not be a poor investment, the era of automatic gains appears to be over.