A sharp and widespread selloff in the popular AI infrastructure and computing power theme, which has propelled global stock markets to record highs this year, triggered a significant downturn across global equities on Tuesday, marking a severe trading session often termed a "Black Tuesday."
Concerns over a potential bursting of the "AI bubble" have resurfaced, prompting accelerated rotation and withdrawal by speculative forces employing high-leverage strategies and investors focused on high-frequency short-term trading from the heavily crowded positions in AI computing-related tech stocks that had performed strongly this year.
Simultaneously, markets are awaiting further positive developments in peace talks between the United States and Iran.
The MSCI All Country World Index, a broad measure of global equities, fell 0.6%. A key Asian stock benchmark saw a rare and sharp decline of over 3.5%.
South Korea's benchmark Kospi Composite Index plunged over 9%, triggering a trading halt for 20 minutes, as markets grew concerned that the rally in its two heavyweight memory chip giants, Samsung Electronics Co Ltd and SK Hynix Inc, which together account for about 50% of the index weight, had become overextended.
S&P 500 and key European benchmark stock futures fell over 1%, while Nasdaq 100 futures dropped more than 2% at one point.
In South Korea, a market that has seen some of the most frenzied gains this year and is considered a bellwether for AI computing investment, the KOSPI index closed down 9.99%, severely breaching the 8,300-point level to finish at 8,203.94.
In Taiwan's stock market, some analysts have begun to portray it as a prime example of global AI bubble rupture risk: the market has surged over 100% in a year, tech stocks constitute about 80% of the index, margin buying has skyrocketed 160% over 12 months, and both retail and institutional investors are leveraging up.
The Taiwan Weighted Index closed down 1.34% on Tuesday.
These moves followed a sharp decline in major U.S. tech stocks on Monday and a rise in the 10-year U.S. Treasury yield, driven by inflation expectations and Federal Reserve tightening concerns, which dragged the S&P 500 lower.
In other markets, the U.S. dollar was largely flat. The Japanese yen hovered near its lowest level since 1986.
Foreign exchange traders remained highly alert to the risk of renewed intervention by Japan's Ministry of Finance after Finance Minister Shunichi Suzuki stated he had spoken with U.S. Treasury Secretary Scott Bessent for about an hour.
The next key milestone for the yen is seen at the 161.95 level against the U.S. dollar. A break below this point would take it to its lowest level since December 1986.
Many market participants, including forex traders, suggest that without Japanese government intervention, the yen's move toward this next critical threshold seems inevitable.
Furthermore, the yen has now erased all the gains achieved during the Japanese Ministry of Finance's record 11.73 trillion yen (approximately $73 billion) intervention in the foreign exchange market between April 28 and May 27.
As long as U.S. dollar interest rates remain high and American economic data stays strong, yen bears have the incentive to continue testing the Japanese government's resolve.
While Japan's Chief Cabinet Secretary Yoshimasa Hayashi has signaled readiness to "take appropriate action at any time as necessary," and Finance Minister Suzuki has previously emphasized preparedness for decisive steps, the market widely believes that intervention near the 160 level might have limited effect.
Waiting until near or beyond 161.95/162 could have a stronger psychological impact on speculators, but it would also appear more like fighting the trend rather than reversing it.
Micron's Earnings and Japan's Intervention as Dual Inflection Points for Risk Assets
"The bearish narrative around an AI bubble burst is resurfacing, and the overnight weakness in big tech is weighing on market sentiment," said Fabien Yip, a senior market analyst at online brokerage IG International.
"While progress continues on a U.S.-Iran peace deal, there remains a fundamental disagreement between representatives from both sides on how to interpret the terms."
The hot trade in AI computing-related stocks has been a key pillar of the global equity bull market trajectory this year, helping the MSCI World Index overcome a series of challenges posed by Middle East geopolitical conflicts.
The index has rallied impressively, setting multiple new record highs, the most recent on June 2.
However, the market periodically experiences sharp short-term pullbacks in the sector, driven by concerns over the potential returns from massive AI infrastructure investments, elevated valuations, and excessively crowded bullish positioning, which can trigger short-term bearish forces.
A key MSCI sub-index measuring Asian technology stocks plunged nearly 5% on Tuesday, ending an eight-day winning streak.
Market attention is now turning to quarterly earnings from U.S.-based memory chip giant Micron Technology Inc, scheduled for release after the U.S. market close on Wednesday, which will serve as a key test of whether AI infrastructure spending can justify its own powerful rally—the stock is up over 300% this year—and the broader surge in global AI computing-related tech stocks.
"Short-term risks, particularly for concentrated regional AI chip stocks in Asia, primarily include market structure and increasingly unstable positioning crowding, coupled with potential volatility from Micron's post-close earnings on Wednesday," said David Savage, a senior strategist at Bloomberg Strategists, Macro Squawk.
"Additionally, concerns are mounting over whether the unprecedented AI infrastructure investments by U.S. hyperscale cloud providers are prudent."
Brent crude oil fell over 1%, dropping below $77 per barrel. Oil prices had declined more than 3% on Monday after both Washington and Tehran indicated progress in the first round of discussions aimed at achieving a lasting peace agreement.
The U.S. issued a 60-day license allowing Iran to sell oil on international markets, providing a crucial economic lifeline; however, some disagreements have surfaced, with Vice President JD Vance stating Iran agreed to allow inspectors access, a claim denied by Tehran.
"AI Bubble Burst" Fears Intensify, Global Focus on Taiwan's Stock Market
"There is definitely a risk-off mood in the air," said Rodrigo Catril, a strategist at National Australia Bank in Sydney.
"The market seems more concerned about the poor performance of U.S. big tech overnight and is not seeing the positive side of falling oil prices."
In Taiwan's stock market, some analysts have begun to portray it as a prime example of global AI bubble rupture risk: the market has surged over 100% in a year, tech stocks constitute about 80% of the index, margin buying has skyrocketed 160% over 12 months, and both retail and institutional investors are leveraging up.
Over the past year, Taiwan's benchmark stock index has surged over 100%, surpassing the UK, Canada, and India within weeks to become the world's fifth-largest stock market.
For top equity analysts on Wall Street, the Taiwanese market is becoming the front-line barometer for whether the AI data center capital expenditures of global tech giants are materializing as expected.
Should the feared slowdown in tech giants' AI capex, a cooling in chip/AI server orders, or a dip in demand for advanced processes/packaging materialize, a pullback in Taiwan's stock market could be magnified by its concentrated AI weight.
It could even potentially become the first domino leading to a global AI investment bubble burst.
In Taiwan, technology firms account for about 20% of economic output but hold an approximately 80% weight in the benchmark index, meaning the stock market has essentially been transformed into a high-concentration "AI semiconductor factor asset."
As long as global cloud providers continue expanding AI data centers and demand for advanced GPUs and AI ASIC accelerators remains robust, Taiwanese equity assets enjoy dual support from earnings expectations and valuation premiums.
However, should the pace of AI capital expenditure show any signs of slowing, a pullback in the highly leveraged Taiwanese market could be significantly amplified by its concentrated AI exposure.
For those investors wary of "AI bubble" narratives, leverage data from Taiwan's market is particularly alarming.
Over the past 12 months, the amount investors borrowed from local brokerages to buy stocks surged 160%, approaching historical highs seen before the bursting of the global internet bubble in 2000.
This increase far exceeds the 50% rise in the final 12 months of the internet bubble and also surpasses the recent roughly 94% increase in margin buying in South Korea, another strong AI market in Asia.
U.S. Treasuries strengthened in early Asian trading on Tuesday following a sharp selloff on Monday, despite the turn lower in oil prices.
Strategists have recently cited the strong hawkish message and related framework for reforming Fed communication from Federal Reserve Chair Kevin Warsh last week as one reason for pressure on bond markets.
Bond traders are now focused on U.S. PCE inflation data this week for an initial gauge on whether the market's newly formed hawkish stance is justified.
Gold fell over 1.5% as resurgent inflation and Fed tightening concerns overshadowed early optimism around talks to resolve the Iran conflict. Silver dropped more than 3%. Bitcoin also fell sharply, down over 3%.
"Negotiations around the Iran situation have shifted to lower-level technical discussions, leaving some uncertainty, but the real volatility driver this week remains Thursday's core PCE data," said Billy Leung, an investment strategist at Global X Management in Sydney.
Regarding mainland China A-shares and Hong Kong markets on Tuesday, among the major A-share benchmarks, the ChiNext Index saw the largest decline, closing down nearly 4%.
The Shenzhen Component Index closed down 3.2%, and the Shanghai Composite Index fell 1.37%.
In Hong Kong, the Hang Seng Tech Index fell over 3.5% at one point, according to Hong Kong Exchanges and Clearing data, a decline notably larger than that of the broader blue-chip Hang Seng Index.
This indicates that selling pressure in Asian markets on Tuesday was primarily concentrated in the tech and growth sectors closely linked to AI computing infrastructure.
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