Japan's Nikkei slumps 3% as tech stocks tumble on AI worries

Japan's Nikkei share average plummeted by up to 3% on Friday, primarily driven by chip-related stocks, as worries grew over the viability of spending to fuel the AI boom. Tokyo's markets mirrored overnight losses on Wall Street, with additional pressure from late earnings reports from Amazon.com and Intel, which revealed substantial cash burn, causing shares of these companies and their peers to plummet in extended trading hours.

This slump can be interpreted as a reflection of mounting concerns about the profitability of AI investments, which have been negatively impacting share prices, as noted by Maki Sawada, an equities strategist at Nomura Securities. The downturn in US technology shares is having a noticeable effect on the Japanese stock market. As of 2003 GMT, the Nikkei was down 2.8%, having initially fallen by 3% earlier in the day, with major contributors being chip equipment leaders Advantest and Tokyo Electron, which saw declines of 9.1% and 5.6%, respectively.

The trading environment has been volatile this week due to earnings announcements from Japan, the US, and South Korea, leading to sharp fluctuations in technology stocks. In contrast, the broader Topix experienced a less severe 1.3% decline on Friday but is projected to slip by 0.4% during the week. Apart from earnings reports, a decrease in crude oil prices, buoyed by optimism surrounding Middle East peace talks, provided support to Japanese stocks.

Given Japan's resource-poor status, it relies heavily on energy imports, particularly from the Middle East. The Bank of Japan is scheduled to release its policy decision on Friday, with expectations of a rate hold, although market participants are keenly observing potential hints of a rate hike during its December meeting. Out of the 225 constituents in the Nikkei, 123 experienced a decline, while 100 recorded an increase, with two remaining unchanged.

Among the notable decliners were Advantest, Tokyo Electron, Ibiden, Lasertec, and SoftBank Group. Despite these losses, some companies managed to stand out, such as game developer Konami, which surged 15.3% to become the Nikkei's largest percentage gainers, and Oriental Land, the operator of Tokyo Disney Resorts, which followed with a 6.6% increase.