Asian stocks slide as AI and chip shares sell off on US inflation

Sell-off spreads across Asian markets

Stock markets across Asia fell sharply on Thursday, 15 October, with technology shares taking most of the damage. MSCI's broadest index of Asia-Pacific shares outside Japan had tumbled 3.3%, led by an 8% plunge in South Korea's Kospi, while Japan's Nikkei 225 had lost 4.8%. Earlier readings had the Kospi sinking more than 7% in early trading. Samsung Electronics plunged 9.3%, while SK Hynix and Kioxia Holdings each fell more than 11%. SoftBank Group, an AI-focused investor, dropped 9.4% and Taiwan Semiconductor Manufacturing Company slipped 2%.

Inflation revives rate-hike fears

US consumer price inflation rose faster than expected in September, raising expectations that the Federal Reserve would act later this year. On Wednesday, 14 October, Wall Street had its worst day since July, with the S&P 500 down 1.1% and the Nasdaq Composite tumbled 1.9%. The Fed's Beige Book described a mixed picture, with inflation picking up in some regions and few hires or layoffs across the economy. Companies mostly expect slight growth, but higher fuel and raw material prices, tariffs and insurance costs add pressure. Rising US bond yields fed fears that borrowing costs would stay high.

AI financing worries hit chip stocks

Doubts about how the AI build-out is financed added to the pressure. CoreWeave, a US "neocloud" that rents computing power for training and running AI models, lost more than 15% of its market value on Wednesday, mainly over debt and rising financing costs. Higher rates also weighed on Oracle and other AI names sensitive to borrowing costs, and a gauge of semiconductor stocks extended its losses into a sixth day. JPMorgan analysts wrote in a note that tech was the main driver of the selloff, with financing risks and IPO timelines still central to the story.

Strategists split on the outlook

Analysts disagree on how deep the damage goes. Charu Chanana, chief investment strategist at Saxo Bank in Singapore, described the move as a repricing of capital costs.

The selloff in Asia looks less like a sudden deterioration in technology fundamentals and more like a repricing of the cost of capital.

Mark Matthews, head of research for Asia at Bank Julius Baer in Singapore, took a calmer view. Some strategists also noted that trading volumes were light and that October is typically a volatile month for markets.

I'm not worried, because stocks are not expensive, there is no sign of a recession, and demand still massively exceeds supply in most parts of the AI story.

Fundamentals remain firm for now. Dutch chip equipment maker ASML reported higher third-quarter sales and profit on Wednesday and a more confident view for the current financial year. TSMC reported record third-quarter revenue of about $46.7 billion in early October, up 50% from a year earlier. Investors will be watching whether demand for AI chips holds and whether TSMC raises its investment plans.