Nikkei Slips as Nvidia Rally Fades Into Profit-Taking

Tokyo stocks fell on August 27, with the Nikkei 225 closing at 66,131.98, down 130.18 points, after early enthusiasm for artificial intelligence and semiconductor-related shares following Nvidia's strong earnings forecast turned into profit-taking, while the broader TOPIX edged up for the sixth consecutive session. The TOPIX rose 6.20 points to 4,117.22, indicating that the overall market remained stronger than the Nikkei's technology-heavy benchmark.

Trading volume reached approximately 1.96156 billion shares. The Nikkei opened sharply higher, climbing more than 500 points at the start of the session to 66,775.78 following Nvidia's stronger-than-expected results and optimistic sales outlook. However, this momentum was short-lived. After the initial buying rush, investors began locking in profits, causing the Nikkei to gradually lose steam and end lower for the first time in three sessions.

Commentators noted the discrepancy between Nvidia's robust forecast and the profit-taking seen in AI-related stocks. While Nvidia's numbers reassured investors about ongoing demand for AI chips and data-center infrastructure, the market had already seen a rebound in AI-linked stocks, making them vulnerable to profit-taking. The broader TOPIX's gain demonstrated that investors were not abandoning Japanese equities altogether, as they continued to rotate money into financials, value shares, and domestic-demand names.

Nvidia projected a 70% revenue growth for the fiscal year ending January 2028, far exceeding market expectations, and warned that memory-component shortages would continue to constrain production growth. This outlook bolstered global chip shares, highlighting that demand remained strong enough to strain supply chains. For Japan, Nvidia's forecast had particular significance due to its impact on sentiment towards semiconductor testing, memory, chip equipment, optical fiber, electronic components, and data-center infrastructure.

Japanese companies are heavily exposed to the AI buildout across various stages of the supply chain. Kioxia Holdings experienced the most significant gains, rising about 5% after Nvidia's announcement and reports of the memory-chip maker's plans to invest over 1 trillion yen in a new production facility in Iwate Prefecture. This move reinforced investor confidence in high-bandwidth memory, AI servers, and storage demand.

Kioxia has become a key gauge of confidence in the AI hardware cycle, with its shares remaining highly volatile since July. Other related companies, such as Fujikura, also rose, benefiting from demand for optical fiber, cables, and high-speed data-center networks. Tokyo Electron gained early in the day as investors bought semiconductor equipment shares, while other related stocks also drew initial interest.

However, gains in these sectors faded as the day progressed, suggesting that investors remained cautious following several sharp reversals in recent weeks. Advantest underperformed the Nikkei despite Nvidia's optimistic outlook, as the chip-testing equipment maker had already attracted significant buying and remains highly sensitive to profit-taking due to its large index weighting.

SoftBank Group also weakened, limiting the Nikkei's overall performance. The company remains a prominent symbol of global AI investment sentiment due to its exposure to OpenAI, robotics, digital infrastructure, and large-scale technology themes. Its substantial weight in the index meant that even a modest decline could have a significant impact on the Nikkei.

The mixed performance of AI-linked shares indicated that the market was becoming more selective, no longer treating Nvidia's strong results as a reason to buy the entire semiconductor sector without careful consideration. Investors were scrutinizing valuations, earnings visibility, funding needs, and the direct AI demand benefits of each company.

The sector split also reflected concerns over supply constraints. Nvidia's warning that memory-component shortages were limiting production growth was positive for some memory suppliers and equipment makers but also highlighted the risks of bottlenecks, margin pressure, and uneven order timing in parts of the AI supply chain. Meanwhile, financial shares remained steady, benefiting from expectations of a gradual normalization of Japan's interest-rate environment.

Banks and insurers continued to profit from higher margins and improved returns on invested assets, although they remained sensitive to changes in bond yields and the valuation of financial institutions' bond portfolios. The yen traded around 159.29 to the dollar, showing little movement after comments from Bank of Japan Deputy Governor Ryozo Himino.

Himino expressed confidence that timely rate hikes would prevent an inflation spike that could lead to abrupt tightening measures, but he did not provide a clear signal that the BOJ would raise rates at this time.