Japan’s Stocks Dive as Investors Worry About AI Rally’s Run

Japanese stocks tumbled as a sharp selloff on Wall Street sparked renewed concerns over the sustainability of the global artificial intelligence rally.

The chip-heavy Nikkei 225 Stock Average declined 3.2% to 64,684.09, while the broader Topix fell 1.8% to 3,958.00 as of 10:24 a.m. in Tokyo. The Nikkei 225 is heading toward a technical correction, trading more than 10% below its June peak.

Tech shares led the market lower, with Tokyo Electron Ltd. dragging down the Topix Index the most as the semiconductor gear maker slid 7.2%. Within the broader index, 810 stocks fell while 788 rose, with 39 unchanged.

“The selloff is far steeper than what we’re seeing in the US market,” said Yugo Tsuboi, chief strategist at Daiwa Securities Co. “With South Korea’s market closed today, investors haven’t been able to digest semiconductor-related concerns there, so some may be using the Japanese market as a hedge instead.”

While the earnings season kicked off with Taiwan Semiconductor Manufacturing Co. raising its spending and revenue targets, the chipmaker’s shares fell as investors balked at the soaring capital expenditures required for AI. The retreat mirrors Samsung Electronics Co.’s selloff earlier this month despite beating preliminary earnings estimates, highlighting growing market fatigue over heavy tech investments.

“The fact that semiconductor-related stocks are being sold despite strong earnings reports suggests that the market had already priced in these robust results, leading to a ‘sell-the-news’ reaction,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

The planned listing of Chinese chipmaker CXMT raises concerns that a production surge could trigger a collapse in memory prices, Ichikawa added.

Kioxia Holdings Corp. led losses on the Nikkei 225, with the memory chipmaker’s market capitalization halving in just a month since it briefly became the nation’s most valuable company.