AI Stocks Crash as Asian Markets Plunge 7% Amid Growing Concerns Over AI Trade Sustainability

Asian Markets Witness Sharp Decline on AI Trade Concerns

Asian markets experienced a brutal selloff on Tuesday, with the MSCI Asia-Pacific index falling more than 2% to its lowest level since late July3

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. The sharp decline came as investor concerns over AI spending intensified, triggering a broader rethink of the AI trade that has propelled global stocks to record highs in recent years1

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South Korea's KOSPI bore the brunt of investor angst, sinking over 7% to its lowest since late July in its sharpest one-day drop since July1

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. The selloff marked a significant reversal for Seoul's equity market, which had been tentatively recovering from a months-long rout. Japan's Nikkei Stock Average shed 2.6%, Taiwan's Taiex declined 2%, and China's blue-chip index fell to its lowest in more than a year2

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Major Chipmakers Hit Hard by Selloff in AI Chipmakers

The region's AI chipmakers faced particularly severe losses as the selloff in AI chipmakers spread across the sector. Samsung plummeted 8% while SK Hynix dropped 10%3

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. TSMC declined 1.8%, Kioxia Holdings slid 14%, and AI investor SoftBank fell 8%3

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. The rout followed a sharp 2.7% drop in US chipmakers after reports emerged of rapid tech progress by Chinese rival ChangXin Memory Technologies (CXMT), raising the prospect of Chinese firms closing the technology gap1

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The Philadelphia Semiconductor Index ended 3.8% lower on Friday, while the tech-heavy Nasdaq recorded its weakest week since June2

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. Nasdaq futures fell an additional 0.77% on Tuesday, signaling continued pressure on AI stocks3

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Growing Fragility of the AI Trade Raises Investor Concerns

The steep rout has brought to the fore the fragility of the AI trade as investors remain concerned about the durability and profitability of the sector1

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. Charu Chanana, chief investment strategist at Saxo, noted that "investors are becoming much less forgiving of the AI trade" and are questioning "not just how much AI demand can grow, but how long today's exceptional profits and margins can last as competition increases"3

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While nobody's doubting AI demand, the worry centers on who gets paid for it and whether massive AI infrastructure investments will deliver returns quickly enough1

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. Tiger Brokers' James Ooi observed that the selloff has spread across the AI value chain, affecting even companies with limited financing needs, suggesting that "sentiment may be overtaking fundamentals"2

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Concentration Risks and China's Tech Advancements Fuel AI Jitters

Fears of concentration risks and concerns over how quickly the massive spending on AI infrastructure can provide returns have triggered multiple selloffs in stock markets this year1

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. The CXMT news appears to have been a clear trigger for the latest selloff, highlighting how China's tech advancements are reshaping competitive dynamics in the sector3

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Analysts believe that debt-laden AI financing and the timeline for actual economic returns have reached a critical tipping point, despite fresh earnings reports from ASML and TSMC showing robust AI demand2

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. Data-center provider Coreweave's share and bond selloff brought credit risks into focus, prompting investors to rotate toward defensive sectors2

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Broader Market Implications and Bond Market Response

The AI jitters occurred against a backdrop of geopolitical tensions and inflation concerns, with Brent crude futures hovering near $106 a barrel and bond yields near multi-decade highs1

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. However, the benchmark 10-year yield fell 5 basis points to 5.193%, inching away from the 24-year high of 5.364% hit last week, as investors sought safety in government bonds3

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Chanana cautioned that while investors were moving back into Treasuries after the recent sharp rise in bond yields, she viewed it as "a tactical rally rather than a lasting turnaround," citing sticky inflation, elevated oil prices, and heavy government borrowing as obstacles to sustained bond recovery3

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. The cautious sentiment helped keep the US dollar near an 18-month high, with the euro at $1.1173 and the Japanese yen at 158.34 per dollar3

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