Key points
- Asian tech stocks experienced sharp declines, mirroring overnight losses on Wall Street.
- Concerns over the artificial intelligence (AI) sector’s valuation and potential government intervention fueled the sell-off.
- The US government’s potential equity stakes in tech firms receiving CHIPS Act funding added to investor uncertainty.
- A MIT report highlighting low returns on generative AI investments further dampened market sentiment.
Asian technology markets suffered a significant setback on Wednesday, with major stocks plummeting in the wake of overnight losses on Wall Street. The decline was primarily driven by growing skepticism surrounding the sustainability of the current AI boom and the potential for increased government involvement in the sector.
Investors, having witnessed a recent surge in tech valuations, engaged in significant profit-taking, exacerbating the downward trend.
Adding to the uncertainty, speculation intensified regarding the US government’s intention to acquire equity stakes in major chipmaking and AI companies that have received funding under the CHIPS Act. This followed the confirmation of the Commerce Department taking a stake in Intel Corporation.
The potential for similar interventions in other tech companies fueled concerns about increased government control and further dampened investor confidence. This anxiety was reflected in the over 1.5% decline of the NASDAQ Composite on Tuesday.
The impact was keenly felt across Asia. SoftBank Group Corp. experienced a dramatic over 9% fall, while key Nvidia suppliers like Advantest Corp. also suffered significant losses. Other prominent chipmakers, including Tokyo Electron Ltd. and Renesas Electronics Corp., experienced declines ranging from 1.8% to 3.2%.
In Hong Kong, tech giants Baidu, Alibaba, and Tencent Holdings all saw decreases between 0.8% and 2%, with only Xiaomi showing relative resilience thanks to strong second-quarter earnings.
Adding fuel to the fire, a recent report from the Massachusetts Institute of Technology cast doubt on the widespread profitability of generative AI investments. The report indicated that a vast majority of organizations were seeing minimal returns, highlighting the potential for an overvalued AI market. This, coupled with warnings from OpenAI CEO Sam Altman about a possible AI bubble, further eroded investor confidence.
The upcoming earnings report from Nvidia, a key player in the AI sector, adds another layer of uncertainty to the already volatile market. The confluence of these factors, including profit-taking and lingering concerns about US interest rates, led to the widespread sell-off in Asian tech stocks.
