Asian stocks recovered significantly, marking their biggest rebound since March. This recovery was fueled by a return of investor confidence in the artificial intelligence (AI) trade, which had previously driven a selloff in chipmakers. Shares of chipmakers, including Nvidia Corp. and Intel Corp., saw gains, with the Philadelphia semiconductor index rising by over 5.5% in the US session. South Korean chipmakers, such as Samsung and SK Hynix, led the recovery in the Kospi index.
Simultaneously, tensions in the Middle East eased after Israel and Iran signaled a de-escalation of hostilities following an exchange of fire. This led to oil prices drifting lower, with Brent crude holding near $94 a barrel, down from $97 a barrel the previous day. This de-escalation was significantly influenced by statements from the Trump administration, guiding a halt to further conflict.
The recovery in the AI sector was further bolstered by news that Google is reportedly set to rely on Intel for more than 3 million specialized AI chips in 2028. Analysts from Nomura International Wealth Management North Asia, like CIO Julia Wang, believe that the chip rally in Asia is largely justified by earnings growth, although valuations have also reset.
Despite the positive momentum, there are underlying concerns about market volatility. Retail participation in call options for semiconductor names has increased significantly, building up margin exposure and leverage, which could lead to heightened volatility. However, the fundamental outlook for semiconductors remains strong, with expectations of continued supply constraints and robust demand potentially extending the "super cycle" in the industry well into 2027 and beyond.
