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

Tokyo’s Nikkei share average plummeted by up to 3% on Friday, primarily driven by chip-related stocks, as worries grew surrounding the viability of spending fueling the AI boom. Overnight losses on Wall Street and late earnings from Amazon and Intel, which revealed substantial cash burn, further fueled the decline, sending shares of these companies and their peers plummeting in extended trading hours.

Maki Sawada, an equities strategist at Nomura Securities, commented that this could be interpreted as a reflection of mounting apprehensions about the profitability of AI investments, which is adversely impacting share prices. The Nikkei stood at a decline of 2.8% by 2003 GMT, after initially falling 3%, with chip equipment leaders Advantest and Tokyo Electron dropping 9.1% and 5.6%, respectively.

This week’s trading has been erratic due to earnings revelations from Japan, the US, and South Korea, causing significant fluctuations in technology stocks. Despite the sharp decline, the Nikkei remains up 0.2% for the week. Meanwhile, the broader Topix experienced a milder drop of 1.3% on Friday but is expected to lose 0.4% this week.

Factors beyond earnings, such as falling crude oil prices due to optimism over Middle East peace talks, have bolstered Japanese stocks. Given its heavy reliance on energy imports, especially from the Middle East, Japan's resource-poor economy is significantly affected by oil prices. The Bank of Japan is set to announce its policy decision on Friday and is anticipated to maintain interest rates, although investors will be vigilant for clues regarding the possibility of a rate increase at its December meeting.

Out of the 225 components in the Nikkei index, 123 experienced declines compared to 100 that rose, with two trading flat. Among the notable chip and AI losers were Advantest, Tokyo Electron, Ibiden (down 15.2%), Lasertec (down 13.8%), and SoftBank Group (down 6.7%). Some standout performers included Konami, a game maker, which surged 15.3% to become the Nikkei’s top percentage gainer, and Oriental Land, the operator of Tokyo Disney Resorts, which rose 6.6%.