Tech stocks slump in Asia, driven by AI safety concerns

Asian technology stocks plunged on Monday as investors withdrew from AI-related chipmakers, amid rising bond yields and renewed worries over the viability of the AI boom before crucial central bank meetings. The South Korean KOSPI led the downward trend, shedding 3.1%, while Japan's Nikkei 225 dropped 1.1%. U.S. tech sentiment also lagged, with Nasdaq 100 futures sinking 1.2%, outpacing the 0.4% decline in S&P 500 futures, indicating sustained pressure on growth stocks before the U.S. markets open.

The decline follows a surge in U.S. Treasury yields nearing 5% and markets pricing in an 86% chance of a 25-basis-point Federal Reserve rate hike this week, following more robust-than-anticipated U.S. inflation data. Higher yields disproportionately impact premium technology companies whose earnings are projected further out. Semiconductor stocks were particularly hard-hit, with investors growing more wary of the AI trade after a period of substantial gains.

The sector was further clouded by fresh debate on AI spending after Anthropic CEO Dario Amodei advocated for a slowdown in developing more powerful AI models for safety reasons, adding to concerns over lofty valuations in AI infrastructure stocks. South Korea's tech sector is especially vulnerable to changes in AI sentiment due to major memory-chip producers Samsung Electronics and SK Hynix being key suppliers of high-bandwidth memory for AI processors.

Chip stocks drove the decline, with SK Hynix falling 4.3% and Samsung Electronics down 2.5%, dragging down the KOSPI, which fell 3.1%. LG Innotek also declined 3.1%, intensifying the pressure on technology hardware stocks. Japanese semiconductor-related shares faced additional pressure, with the broader semiconductor complex weakening as investors shifted out of high-growth technology stocks amid rising borrowing costs and geopolitical uncertainty.

Japanese tech stocks also slipped, led by Kioxia, which plummeted 7.1%, while Murata Manufacturing tumbled 3.6% and TDK declined 0.1%. Sony defied the trend, surging 3.1%, mitigating some of the losses among other large-cap electronics companies. The technology sell-off occurred in a broader risk-off climate following oil prices breaching $100 per barrel due to renewed attacks on Saudi energy infrastructure and Gulf shipping, raising concerns that inflation could stay elevated and keep central banks on a tighter policy path.

Traders are now anticipating policy announcements from both the Federal Reserve on Wednesday and the Bank of Japan on Friday, with a high likelihood of a BOJ rate hike fueling the yen's strength and further stressing Japanese equities.