The fervor for artificial intelligence trades has abruptly cooled, triggering a widespread sell-off in global technology stocks and presenting the first significant challenge to this year's robust, AI-driven market rally.
The Korea Composite Stock Price Index (KOSPI) faced pressure, tumbling 5.3% and briefly triggering a circuit breaker. This index, which has been among the world's top-performing major benchmarks this year and a key barometer for global AI investment, saw its components SK Hynix Inc. drop 8.9% and Samsung Electronics Co., Ltd. fall nearly 7%. Concurrently, Nasdaq 100 index futures declined 1%, signaling a potential third consecutive day of losses for the index, while the MSCI Asia Pacific Index fell 1.6%.
Primary Catalyst for the Sell-Off
The immediate catalyst for this round of selling was Broadcom Inc.'s outlook for AI chip sales, which fell short of the market's highly optimistic expectations. Broadcom Inc. shares plunged over 12% on Thursday, marking their largest single-day drop in nearly 16 months and spreading the decline across the broader semiconductor sector.
Market attention has now shifted to the U.S. May non-farm payrolls report due Friday. This data will directly influence investor expectations for the Federal Reserve's policy path and determine whether the AI-fueled market advance can regain momentum following this period of consolidation.
Key Market Movements at a Glance
South Korean stocks fell 5.3%, briefly triggering a circuit breaker, with SK Hynix Inc. down 8.9% and Samsung Electronics Co., Ltd. down nearly 7%.
Nasdaq 100 index futures dropped 1%, pointing to a third straight day of declines.
European equity futures edged down only 0.1%, benefiting from the region's relatively limited exposure to the tech sector.
The yield on the 10-year U.S. Treasury note was little changed at 4.47%.
The U.S. Dollar Index was steady.
The South Korean won extended its decline, hitting its weakest level against the dollar since 2009.
Spot gold fell 0.6% to $4,447.36 per ounce.
Spot silver fell below $72 per ounce, losing over 2.5% for the day.
Brent crude oil recovered slightly to $95.50 per barrel.
Bitcoin fell 1.1% to $62,879.26.
Asian Markets Bear the Brunt
South Korea was at the forefront, with Japan also feeling pressure. The KOSPI's rise this year, which saw it briefly surpass India to become the world's sixth-largest stock exchange and record the best annual gain among major global markets, also means its pullback now carries amplified impact for global markets. The sell-off in Seoul is weighing on global risk sentiment, and the reversal of Korea's influential market trend offers little relief to investors elsewhere.
Japanese tech stocks also recorded notable losses. Tokyo Electron Ltd. and Advantest Corporation fell over 6% and 5% respectively, while Murata Manufacturing Co., Ltd. dropped 4.8% and Fanuc Corporation declined 4.1%. Taiwan Semiconductor Manufacturing Company (TSMC) bucked the trend with a 0.4% gain, standing as a rare bright spot. In contrast, European equity futures saw only a minor 0.1% dip.
Renewed Fears of an AI Bubble
With Broadcom Inc.'s results disappointing the market, concerns about an AI bubble have resurfaced. Some market participants noted that a degree of consolidation was long overdue given the unprecedented speed and intensity of the recent AI rally, with Broadcom Inc.'s shortfall providing a logical trigger for profit-taking by investors sitting on substantial gains. This is viewed by some as a healthy correction that does not undermine the longer-term investment thesis. Others, however, see it as the reignition of bubble fears putting pressure on the tech sector, with the upcoming jobs data likely to amplify market volatility and make some profit-taking a reasonable move.
Non-Farm Payrolls as the Next Major Catalyst
The next critical juncture for markets is the U.S. May non-farm payrolls report. Market expectations, based on a survey of economists, are for an increase of 85,000 jobs, which would be the lowest in nearly three months, with the unemployment rate expected to hold steady at 4.3%. The report is seen as crucial, with warnings that an overly tight labor market could increase the probability of the Fed raising rates sooner than anticipated. Treasury traders have already largely priced in a Fed rate hike within the next 12 months, and a weaker-than-expected jobs number could significantly challenge these positions.
Other Asset Classes: Oil, Gold, and Asian Currencies
In other markets, Brent crude oil recovered slightly to $95.50 per barrel, partially recouping losses triggered by optimism over a potential broader diplomatic breakthrough. Gold prices declined to around $4,440 per ounce amid ongoing uncertainty surrounding geopolitical negotiations. The U.S. dollar traded within a narrow range against G10 currencies as markets awaited the jobs data for clues on the Fed's interest rate path.
Among Asian currencies, the South Korean won extended its decline to hit a 2009 low against the dollar. The Indonesian rupiah traded near historic lows amid large-scale foreign investor withdrawals from local bonds and stocks. Conversely, the Indian rupee strengthened against the trend following a series of measures announced by the Reserve Bank of India aimed at boosting capital inflows.
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