Asian stocks and US equity-index futures retreated after major artificial intelligence companies called for a slowdown in AI development, raising concerns about a sector that has significantly powered this year's market rally. MSCI's Asia Pacific equities index dropped 0.5%, with South Korea's Kospi Index, a barometer of AI investment, falling 2.1%. Chipmakers SK Hynix Inc. and Samsung Electronics Co. saw declines, and SoftBank Group Corp. slumped as much as 13% in Tokyo after OpenAI's CEO Sam Altman stated the company would not go public this year. Futures on the tech-heavy Nasdaq 100 Index declined 1.1%, and contracts for the S&P 500 Index fell 0.4%.
Meanwhile, Brent crude rose 2.7% to $107.51 a barrel, and West Texas Intermediate crude rose 2.8% to $102.84 a barrel. This surge followed Saudi Arabia's closure of a key oil pipeline due to drone attacks and the postponement of a planned meeting between Iran and Gulf states. The dollar strengthened, and Treasuries held losses from the previous week's selloff, which pushed the benchmark 10-year yield closer to 5%, currently at 4.97%. This was driven by hotter-than-expected US inflation data, strengthening the case for higher interest rates, with swap traders now seeing a nearly 90% chance the Federal Reserve will raise its key rate on Wednesday.
Investors are re-evaluating the AI trade amidst warnings from industry leaders. Anthropic PBC CEO Dario Amodei called for the industry to slow the development of its most advanced models, a sentiment echoed by OpenAI's Sam Altman and xAI's Elon Musk. This debate adds to scrutiny over the billions being invested in AI and whether future earnings can justify the soaring infrastructure costs. High-valuation shares remain vulnerable to signs of weaker returns or slower spending, though some analysts, like Yugo Tsuboi of Daiwa Securities Co., believe it's more about slowing the pace of development rather than a decline in investment itself.
Market analysts highlighted the confluence of negative factors. Tim Waterer, chief market analyst for KCM Trade, noted that the combination of AI slowdown warnings, rising oil prices due to the Saudi pipeline closure, and the 10-year Treasury yield nearing 5% creates a difficult environment for risk assets. Frederic Neumann, chief Asia economist at HSBC, added that the spike in oil prices is fueling inflation and growth worries, while impending policy tightening from the Fed and the Bank of Japan further contribute to headwinds for a global rally in risk assets.
