AI stocks bounce back after $2.5 trillion wipeout, but questions remain

On Friday, the AI-driven stock sell-off that wiped roughly $2.5 trillion in market value off Wall Street gradually eased, though Asian and European markets were hit hard. US tech stocks experienced a slight rebound, with the Nasdaq and S&P 500 rising 1.1 percent and 0.3 percent, respectively. However, the Dow Jones Industrial Average fell about 0.5 percent.

Market recoveries often occur following sell-offs as investors purchase stocks at discounted prices. Despite Friday's bounce back, the S&P 500 still ended the week down roughly 2.7 percent, its poorest week since April 2025, when President Donald Trump unveiled tariffs that shook global markets. Some previously hard-hit US stocks in the AI sector, such as Nvidia and SpaceX, rebounded on Friday, with Nvidia rising 2.8 percent and SpaceX gaining 8.6 percent.

Both companies' shares had plummeted by about 9 percent on Thursday. Still, signs of recovery on Wall Street emerged after severe trading days in Asia and Europe. South Korea's Kospi index and Japan's Nikkei 225 index both plummeted 6 percent on Friday, while Taiwan's benchmark Taiex index closed 4.5 percent lower. The declines reflected a retreat among investors from this year's most profitable trades.

Asian tech companies, crucial to the global electronics supply chain, have benefited from high demand for semiconductor chips required to construct large AI data centers. European indexes, which are less concentrated in technology stocks, also declined slightly. The Stoxx 600 index in the region fell 1 percent, and France's CAC 40 and Germany's DAX dropped 0.8 percent and 1.9 percent, respectively.

Chip equipment manufacturer ASML, the largest European company tied to the AI industry, experienced a 6.6 percent drop on Thursday but managed to recover somewhat by Friday, climbing 2.7 percent. This week's dramatic fluctuations in AI stocks highlight the growing uncertainty among investors regarding the potential impact of the US midterm elections on the AI investment boom that has driven both the economy and markets this year.

Some worry that Democrats' overwhelming victories could obstruct the AI investment surge that has fueled economic growth and market performance this year. A study by Columbia Business School estimates that AI-related infrastructure investment was driving nearly all observed US GDP growth at the end of last year. However, concerns about the environmental and community consequences of new data centers have turned AI spending into a significant issue in the US midterm elections.

Democrats' control of the House of Representatives and the Senate, along with their victory in several other contested state seats, has raised concerns that Democratic representatives may block or slow down spending on new AI infrastructure. Such anxieties intensified on Thursday, when the Nasdaq plummeted 5.5 percent, marking its worst day since April 2025, following President Trump's announcement of tariffs on virtually all of America's major trade partners.

The recent volatility in Asian markets, particularly in South Korea, can be attributed to investors reassessing the sustainability of the AI boom and the profitability of steep investments in computing power and memory chips. Jung In Yun, founder and CEO of Fibonacci Asset Management Global, suggested that Friday's sell-off was likely driven by reassessments of AI investment expectations and policy.

However, she believes demand for computing power and memory chips from South Korean tech giants like Samsung Electronics and SK Hynix will persist. "South Korea's tech-heavy market is particularly vulnerable to changing sentiment, so more swings may occur before confidence stabilizes," she said. Government officials in both South Korea and Japan addressed the recent market volatility on Friday.

Japanese Prime Minister Sanae Takaichi acknowledged the sharp declines in AI and chip sector shares and said the government was closely monitoring market developments. She emphasized that the government would focus on measures to foster a robust economy. South Korea's Finance and Economy Minister Lee Hyoung-il also convened a meeting on Friday to discuss the potential impact of the US midterm elections on the nation's economy.

The ministry stated that leaders believed an impact on global markets "cannot be ruled out" and pledged to take proactive measures to prevent overreactions in the Korean stock market.