The global sell-off in technology stocks is accelerating and spreading. Investors are questioning the sustainability of the AI-driven rally, triggering widespread deleveraging and resulting in the worst single-day decline for Asia-Pacific markets so far this year on July 17.
The Nikkei 225 index plunged as much as 6.2% during the session before closing down 4% at 64,141.12 points. This marked the index's largest single-day drop since April 7 of last year. The MSCI Asia Pacific stock index fell 2.9%, bringing its decline from recent highs to the 10% threshold that signals a technical correction, and was on track for its lowest close in over two months. Stock futures pointed to further pressure in Western markets, with Nasdaq 100 futures down 1.6% and European markets expected to open more than 1% lower.
Chip stocks were hit hardest. Taiwan Semiconductor Manufacturing Company (TSMC) faced heavy selling despite reporting better-than-expected earnings, while Japan's Kioxia Holdings saw its shares tumble as much as 16% intraday. Meanwhile, disappointing results from Netflix after the bell, which sent its shares down 9%, further soured the overall market sentiment. The Philadelphia Semiconductor Index has now fallen roughly 19% from its June peak.
A Bloomberg strategist noted that the speed and scale of declines in major Asian indices are beginning to show characteristics of panic selling, as investors rush to lock in gains for the remainder of the year. With July half over, traders' mounting paper losses are further exacerbating the deterioration in market sentiment.
Market Snapshot
The Nikkei 225 closed down 4% at 64,141.12. Japan's Topix index fell 2.7% to 3,919.21. South Korean markets were closed for a holiday.
Nasdaq 100 futures were down 1.6%, with European markets projected to open over 1% lower.
The Japanese yen hovered near 162.45 per dollar, remaining close to a four-decade low.
The yield on the 10-year U.S. Treasury note held steady around 4.55%.
Japanese long-term government bond yields rose notably, with the 30-year yield up 6 basis points to 3.89% and the 40-year yield up 5.5 basis points to 3.88%.
Brent crude oil reversed early gains to trade down 0.5%.
Spot gold held around $2,404.93 per ounce.
Bitcoin fell 1.9% to $62,858.5.
AI Narrative Faces Confidence Crisis
At the heart of this sell-off is growing market skepticism over whether massive AI-related capital expenditure will translate into tangible returns. The four largest U.S. AI operators are projected to spend a combined over $725 billion this year, and investors are scrutinizing every earnings report for evidence that this enormous investment is paying off.
TSMC's stock was unable to escape the selling pressure despite its earnings beat, highlighting the fragility of current sentiment. Alphabet fell 4.4% the previous session, with reports that its flagship AI model is months behind schedule further denting confidence in tech giants.
An analyst at IG International stated that capital expenditure guidance is back in focus as investors grow increasingly doubtful about companies' ability to achieve sustainable growth while maintaining healthy balance sheets. He expects continued volatility during the earnings season but does not believe this marks the end of the AI story.
The head of research at hedge fund K2 Asset Management noted on Bloomberg Television that this has been an exceptionally volatile month for the chip sector. He mentioned that his fund was not overweight the sector coming into the year and thus has been less impacted by the current swings, but acknowledged the rotation underway is quite severe.
Sell-Off Velocity Triggers Alarm
The Bloomberg strategist pointed out that the velocity and depth of declines in major Asian indices are starting to exhibit signs of panic selling, as investors rush to secure year-to-date gains. With July half over, the accumulation of paper losses for traders is worsening the market mood.
The Asian semiconductor stock index is on track for its worst weekly decline since early March. The Philadelphia Semiconductor Index has fallen approximately 19% from its June high. Valuation pressure on tech stocks has been building for weeks, with investors growing increasingly concerned that this year's AI-fueled rally had moved too far, too fast.
Bonds, Currencies, and Commodities Under Pressure
The equity turmoil sent ripples through other markets. Japanese long-term government bond yields rose significantly. Australian government bonds also edged lower, while the U.S. 10-year Treasury yield held steady.
The yen remained near 162.45, close to its four-decade low. Despite renewed warnings of potential intervention from Japan's finance minister, the currency remained under pressure. The New Taiwan dollar fell 0.3% to 32.346 against the U.S. dollar.
In currency markets, the U.S. dollar strengthened modestly against most major peers. The chief Asia-Pacific strategist at Wells Fargo analyzed that three factors—tech stock declines, rising energy prices, and higher U.S. real yields—are supporting the dollar. He noted that while U.S. economic data is not "overheated," it is strong enough to underpin the dollar, with other factors also marginally favoring dollar strength.
Brent crude oil reversed its morning gains to trade down 0.5%, though it remained up about 10% for the week, on track for its largest weekly gain since April. This has reignited concerns about inflationary pressures. Gold, meanwhile, faced its worst weekly drop since early June. Escalating Middle East tensions and rising oil prices have reinforced expectations that the Federal Reserve will keep interest rates higher for longer, weighing on the precious metal. The Fed's vice chair had previously suggested that the central bank should consider further rate hikes if inflation fails to subside as expected.
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