Leading to the steepest regional benchmark declines in a month, as fears of an overheating artificial intelligence (AI) rally shook investor confidence. The MSCI Asia Pacific Index dropped as much as 2.2%, marking its biggest slide since the panic selloff on August 5. Taiwan’s Taiex led the losses, plunging 5.3%, followed by Japan’s Topix, which fell 3.4%, and South Korea’s Kospi, down 3%. The sharp downturn followed a record $278.9 billion loss in market value for global AI chip leader Nvidia Corp. on Tuesday.
The selloff was triggered by analyst warnings that AI-related stocks had surged beyond what the technology can deliver in near-term profits. The anxiety was compounded by weaker-than-expected U.S. manufacturing data, raising concerns about the broader economy.
“Investors are now questioning whether the return on investment in AI is materializing as expected,” said Randy Abrams, head of Taiwan research at UBS Global Asset Management, in an interview with Bloomberg TV. “There’s nervousness because some macroeconomic indicators aren’t as strong as anticipated.”
Despite the increased volatility, some market participants advised against viewing Wednesday’s drop as the beginning of a more significant downturn, suggesting that selective buying opportunities might emerge, given that AI investment is expected to remain robust.
“This feels like a minor storm compared to August’s turmoil,” commented Andrew Jackson, a strategist at Ortus Advisors Pte. “It doesn’t seem like we’re seeing a repeat of the intense panic selling from earlier.”
Chip stocks were the heaviest drag on the MSCI’s broadest Asian equity gauge. Notable Nvidia suppliers, such as Taiwan Semiconductor Manufacturing Co., saw declines of up to 5.5%. Japan’s Advantest Corp., which makes testing equipment, plunged 10%, while South Korea’s SK Hynix Inc., a memory chipmaker, tumbled 9.2%.
Looking ahead, investors are weighing mixed signals as September, historically a volatile month for markets, begins. While China’s economic slowdown continues to dampen sentiment, there is hope that the U.S. Federal Reserve might start cutting interest rates in its upcoming meeting, potentially boosting equities.
Optimism around AI remains among some market watchers, who believe that demand for AI and its infrastructure will stay strong into next year.
“The idea that AI demand has peaked is, in our view, overstated,” said Jung In Yun, CEO at Fibonacci Asset Management Global Pte. “We expect robust demand for AI through the first half of next year.”
Moreover, valuations for AI stocks in Asia are seen as less inflated compared to their global counterparts. A Bloomberg gauge of Asian chipmakers is trading at about 13 times forward earnings estimates, down from over 18 times earlier this year, and significantly below the nearly 24 times level of a similar index for major U.S.-listed peers.
