AI Trade Faces Biggest Test Yet as Chip Stocks Tumble Across Asia

Investors in AI-related stocks are starting to demand proof that the trillions of dollars flowing into chips, data centres and computing infrastructure will produce real returns. A selloff across Asian semiconductor and technology shares this week signaled that the AI trade is facing its toughest stress test so far, as rising bond yields and higher financing costs begin to weigh on the investment case for the sector.

Nearly four years after OpenAI launched ChatGPT, billions of dollars have poured into semiconductor manufacturers, data centre operators, cable companies and other businesses positioned to benefit from the global race to build AI computing capacity. Now signs of strain are emerging, with investors increasingly asking whether expected returns from AI will justify the capital already committed.

What happened across Asian markets

South Korean chipmakers extended their declines for a fifth straight session, with the KOSPI index falling more than 6%. Japan-listed memory maker Kioxia dropped 13%, leading losses among AI-linked names. The declines were the steepest since a similar rout in late July, and the KOSPI has now entered its longest losing streak in more than two years, falling roughly a quarter from its July peak. China’s technology-focused STAR Market has shed more than a third of its value from its July highs.

The pressure has not been confined to Asia. The Philadelphia Semiconductor Index fell 2.7% on Monday, while Samsung Electronics and SK Hynix dropped 10% and 8% respectively in Seoul trading.

Why rising bond yields matter for AI valuations

Higher borrowing costs are becoming a challenge for a sector whose expansion depends on large investments in data centres, advanced chips and computing capacity. Higher financing costs could slow the pace of AI capital expenditure and expose companies that have already committed substantial resources to infrastructure expansion.

BlackRock’s research arm downgraded its view on US equities to neutral on Monday, citing potential volatility around the AI buildout, while turning bullish on short-term US Treasuries. The International Monetary Fund also warned on Tuesday that a correction in AI-related investments could have global consequences. In its latest financial stability report, the IMF acknowledged AI’s contribution to economic growth but highlighted increasing evidence that investment in the technology and its eventual economic benefits might fall short of expectations.

AI funding faces tougher investor scrutiny

Caution is now visible in capital markets, where companies are discovering that investor appetite for AI-related financing is no longer guaranteed. Firmus, an Australian data centre operator backed by Nvidia, shelved its planned $5 billion initial public offering last week after investor interest weakened. The decision showed how quickly concerns about risk and valuations can disrupt funding plans in a sector that has attracted enormous capital.

Tencent Holdings’ dollar and offshore yuan bond sale in Hong Kong on Tuesday drew close attention as investors assessed borrowing costs for major technology companies. Guidance for its 10-year dollar notes was around 1.15 percentage points above US Treasury yields, which stood at approximately 5.2%. SoftBank, a major technology investor, sold a record-sized high-yield debt offering last month, promising investors returns of as much as 9.75% on $4.5 billion of bonds with a 7.5-year maturity. Broadcom’s chief executive said on Monday that access to capital was the biggest constraint on growth.

Investors shift focus from AI growth to returns

Despite the recent losses, the AI trade has not been abandoned. Meta Platforms shares rose 3.4% on Monday after the company released a new AI model, a reminder that genuine progress in the sector can still attract buyers. The sharp decline in South Korean shares, however, reflected investor positioning and the rising cost of capital more than any fundamental deterioration in AI demand.

Markets are entering a phase in which investors pay closer attention to how companies commercialise AI technology and the returns they generate on those investments. That shift could separate businesses able to convert heavy AI spending into sustainable revenue and profits from businesses whose expansion depends on continued access to inexpensive financing.

Companies across the AI ecosystem may face greater pressure to demonstrate that infrastructure spending can yield meaningful financial returns as borrowing costs rise and investors become more selective.

FAQ

Why are AI-related stocks falling in Asia?

AI-related stocks are under pressure as rising bond yields and higher financing costs raise doubts about whether the capital being deployed into chips, data centres and computing infrastructure will produce sufficient returns.

How much have Asian AI stocks lost?

South Korea’s KOSPI fell more than 6% in a session and is down roughly a quarter from its July peak, while China’s STAR Market has shed more than a third of its value from its July highs. Japan’s Kioxia dropped 13% in a session, and Samsung Electronics and SK Hynix fell 10% and 8% respectively.

What signals are investors watching next?

Investors are watching whether AI infrastructure spending translates into sustainable revenue and profits, as well as borrowing costs for major technology issuers. BlackRock has turned neutral on US equities citing AI volatility, and the IMF has warned that a correction in AI-related investments could have global consequences.

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