Asian Markets Tumble as Tech Rout Spreads from Wall Street
Stocks in Asia closed sharply lower on Tuesday as a technology sell-off that began on Wall Street spread across the region. South Korea's KOSPI index plunged 10%, while Japan's Nikkei ended the session down nearly 3.5%, reflecting growing investor anxiety over artificial intelligence valuations and the rising costs of AI deployment.
Korean semiconductor giants SK Hynix and Samsung both fell more than 12% on Tuesday. The sell-off comes as investors grapple with lofty AI valuations and the escalating expenses associated with building and running AI models. Memory chips, especially high-bandwidth memory (HBM) chips, have become significantly more expensive due to surging demand driven by the AI boom.
Wall Street Tech Giants Hit Hard
The rout was not confined to Asia. On Monday, major Wall Street tech names including Alphabet, Meta, Amazon, and Microsoft all declined as investor sentiment turned cautious. The hawkish stance of the US Federal Reserve, which has raised the likelihood of further interest rate hikes this year, added to the pressure on high-growth tech stocks.
Elon Musk's SpaceX, which spans rocket technology and AI, saw its stock fall 19% on Monday, pulling its valuation down to $2 trillion. The stock has lost momentum in recent sessions after a blockbuster debut. SpaceX also announced its maiden bond offering, planning to raise funds for bridge financing and to finance its massive AI ambitions.
European Markets Also Feel the Pain
European stocks followed the downward trend on Tuesday, with the Stoxx 600 index declining more than 1% as the tech rout hit European indices. Chipmakers were among the worst affected: Infineon dropped 5.7%, STMicroelectronics fell 7.5%, and Dutch chip equipment maker ASML lost more than 5%.
The AI Boom and Its Risks
The massive rally in AI-related stocks had pushed many tech companies to record highs in the current quarter. South Korea's SK Hynix and Samsung, along with America's Micron, had entered the trillion-dollar club on the back of blistering demand for their high-bandwidth memory chips. However, the current sell-off highlights the risks associated with the AI boom, as investors assess the costs of deploying AI models. Many companies have reported exhausting their yearly budgets in just a few months on frontier AI models.
Apple's CEO Tim Cook, speaking to the Wall Street Journal, had earlier indicated that a price hike looks imminent due to rising prices of memory chips. The massive AI buildout has seen companies spending hundreds of billions of dollars on capital expenditure to make data centres capable of training large language models.
Fed Hawkishness and Geopolitical Factors
Stocks also suffered due to the Federal Reserve's hawkish stance, even as inflation fears receded following the reopening of the critical Strait of Hormuz. The US and Iran successfully concluded the first round of negotiations in Switzerland, and the US eased sanctions on Iran, which helped calm some inflation concerns. However, the overall market mood remained cautious.
