Asian technology stocks experienced a significant downturn on Friday, mirroring steep overnight losses on Wall Street. This widespread decline underscored growing concerns among investors regarding the sustainability of current AI spending and valuations. SoftBank shares dropped 9.2%, Tokyo Electron lost 9%, and Advantest slid 9.4%. Kioxia, a Japanese memory chipmaker, plummeted over 14% after a federal jury in Texas ordered it to pay $229 million in damages for infringing a Viasat patent.
The sell-off came despite Taiwan Semiconductor Manufacturing Company (TSMC) reporting a sharp jump in profit that topped market expectations. However, investors focused on the company's increased full-year capital expenditure forecast, raising concerns about the difficulty of justifying aggressive investment cycles within the industry. TSMC's shares fell 3.64% on Friday, and its American depositary receipts also dropped 2%.
According to Andrew Jackson, a strategist at Ortus Advisors, the market reaction reflected an unwinding of crowded AI momentum trades rather than a deterioration in the sector's long-term fundamentals. He noted that TSMC's earnings were not perceived as strong enough to justify continued upside for the sector, exacerbating worries about excessive spending.
The declines extended a sharp reversal in global AI-related shares, which had seen months of significant gains. Investors are increasingly questioning whether the high valuations are sustainable, especially as spending on AI infrastructure continues to accelerate. The Nasdaq Composite fell 1.47%, and the VanEck Semiconductor ETF dropped almost 4%. Major US chip companies like Arm Holdings (down over 5%), Micron Technology (down over 5%), Advanced Micro Devices (down over 5%), and Broadcom (down over 5%) also experienced substantial losses. US-listed shares of SK Hynix slumped over 13%, while South Korea's markets were closed for a public holiday.
Analysts are debating whether tech companies have become overvalued, with some anticipating that the four largest US AI operators alone will invest over $725 billion this year. This intense scrutiny means upcoming corporate earnings will be closely watched for evidence that these massive investments are starting to yield meaningful returns and justify current valuations.
