Asia stocks tumble after AI rout rocks US markets

Stocks across Asia tumbled on Friday as fears of heightened regulatory scrutiny and a slowdown in AI development fueled a sharp decline in US markets. Japan's Nikkei fell 7% immediately after the opening bell, while South Korea and Taiwan's benchmark indices dropped over 8%. Stocks in the region then appeared to stabilize as buyers emerged.

European stock futures saw a slight recovery, down 0.6%, while Nasdaq futures were up 1.4%, but sentiment remained fragile. The Nasdaq sank 5.5% and $3 trillion was wiped off S&P 500 firms, as concerns grew that Democrats, who won the midterms, may curb the AI boom. AI-related infrastructure investments came under scrutiny, with investors worried about returns and positioning.

AI chipmakers Samsung Electronics and SK Hynix fell nearly 10% and 12% in South Korea, while Kioxia plunged 14% in Japan and TSMC dropped 8.5% in Taiwan. SoftBank Group slipped 11%, and the cost of insuring against Japanese debt defaults hit its highest in four years. The selloff exposed the shaky foundation of AI stocks built on optimistic expectations, and the US stock market's role as the global AI market's backbone.

Investors also worried about potential slowdowns in AI infrastructure expansion, which could hurt smaller firms struggling with higher interest rates and tighter financial conditions. CoreWeave and its five-year credit default spreads dropped 10% and widened to a record level, respectively. The Philadelphia Semiconductor Index fell 12.2%, and the Nasdaq, after initially recovering from midterms, dropped 12% from its record high a month ago.

Some analysts believed the selloff was excessive, with TSMC hitting its daily limit down circuit breaker at one point, signaling the end of a downturn. Investors sought refuge in bonds and Japanese and Chinese government bonds, while the US dollar weakened against major currencies.