Tech stocks struggle on AI spending worries, elevated yields

Asian stocks experienced a downward trend on Friday, setting the stage for a second consecutive weekly decline. Investors were concerned over rising energy prices, fluctuations in the bond market, and the substantial investments required for artificial intelligence (AI) development. Brent crude futures reached $103.70 per barrel in Asian hours, following a surge of over 4% the previous day, due to worries about the Middle Eastern conflict that has increased inflation and prompted global interest rate hikes.

President Donald Trump assured that the United States would not launch an attack on Iran prior to the US midterm elections in November, though traders remained doubtful of any progress in ending the war. "The key question for markets is whether Trump adheres to his promise if Iranian assaults become more intense," stated Nick Twidale, chief market strategist at ATFX Global.

"Any hint that the White House is reconsidering military action could trigger a sharp spike in oil prices, especially given that tanker traffic through the Strait of Hormuz is already facing significant pressure."

In terms of stock performance, MSCI's broadest index of Asia-Pacific shares outside Japan decreased by 0.16%, indicating a potential over 1% weekly drop. Japan's Nikkei index also experienced a decline of more than 1%. Overnight, tech stocks on Wall Street declined as OpenAI revealed that its annual revenue was $20 billion lower than the company had previously indicated.

This news caused investors to reassess their exposure to the sector. "The tech, AI infrastructure, and semiconductors markets have been on a downward spiral, and the OpenAI disclosure appears to have triggered some profit-taking," said Chris Weston, head of research at Pepperstone. "At present, however, it appears that investors are becoming more discerning about their investments and the prices they are willing to pay for future growth."

Bonds also faced substantial selling pressure, with several major companies expected to raise billions of dollars for AI-related infrastructure. Australia's data center operator Firmus, a firm backed by Nvidia, abandoned its initial public offering priced at $5 billion due to market volatility and conditions, and instead decided to pursue a private fundraising round.

The confluence of higher energy costs, anticipation of central bank interest rate increases, and concerns over mounting government debt has fueled a prolonged global bond selloff, driving borrowing costs to multi-decade highs. "With long-term yields nearing multi-decade highs, investors can no longer afford to value AI growth in a low-cost-of-capital environment," remarked Charu Chanana, chief investment strategist at Saxo.

Chanana further explained that higher sovereign yields and the increasing corporate issuance to finance AI infrastructure have made capital "more expensive and selective, thereby emphasizing the importance of balance sheets and the quality of future earnings." France has been particularly affected due to heightened scrutiny over its debt levels, budget deficit, and political landscape leading up to the 2027 presidential election.

French bond spreads are anticipated to remain elevated for at least half a year, as ING analysts have noted. The US Treasury market exhibited relative stability, with the 10-year yield remaining steady at 5.226%, only slightly below the 24-year peak it previously reached on Wednesday. "Although this does not signify that the bond market turmoil is over, it does momentarily halt the downward momentum," said ING analysts.

In currency markets, the dollar remained robust as the euro continued its fifth consecutive week of decline, reaching $1.122, which is near its 17-month low hit earlier this week due to concerns over French debt.