Nikkei Plunges 3,318 Points as AI Selloff Shakes Tokyo

Tokyo stocks plummeted 3,318 points on October 15, marking the third-largest single-day decline in the Nikkei 225's history. The broader TOPIX fell 97.44 points, dipping below 4,000 for the first time in nearly two months. The decline marked the sixth consecutive session of losses for the Nikkei, with the index having shed more than 6,000 points since October 6.

The selling began immediately after the opening bell and intensified as investors reduced exposure to high-priced semiconductor and AI-related companies. The Nikkei fell over 3,600 points at one point, before recovering slightly before the close. More than 9,400 stocks fell, compared to just 564 that gained value, reflecting a widespread sell-off that extended beyond the technology sector.

The main worry was a reassessment of the financial risks associated with the global AI investment boom, particularly the concerns about rising U.S. interest rates and the sustainability of debt-funded AI investments. CoreWeave, a U.S. cloud-computing provider specializing in AI chips, faced sharp declines in its corporate bonds, prompting investors to question the ability of debt-funded AI firms to generate sufficient earnings and cash flow.

The selloff followed stronger-than-expected U.S. inflation data, which raised speculation about an earlier-than-expected interest rate hike by the Federal Reserve. This would increase borrowing costs for AI infrastructure companies, further pressure the valuation of highly-valued technology shares, and exacerbate concerns about the financial viability of AI infrastructure expansion.

The regional selloff had a particularly damaging effect on Tokyo, as Japan has become one of the world's most significant suppliers of semiconductor equipment, chip-testing technology, and other crucial components for AI infrastructure. The decline was largely driven by a sharp drop in Advantest, a chip-testing equipment maker, which alone reduced the index by over 1,300 points.

Other heavily impacted stocks included Tokyo Electron, Lasertec, Ibiden, Kioxia Holdings, SoftBank Group, and Kioxia. Despite strong earnings reported by Taiwan Semiconductor Manufacturing Co., the October 15 decline signaled concerns over the profitability and financing of AI infrastructure development, casting doubt on the assumption that rapid AI investment would continue to support the Japanese equity market.