The anticipation of increased capital expenditure in artificial intelligence is boosting Asian semiconductor stocks, while US tech shares face pressure after hours. Escalating tensions in the Middle East are driving a sharp rise in oil prices, placing a dual burden on the US Treasury market.
Asia-Pacific stock markets were broadly stronger in early Wednesday trading. South Korea's KOSPI index climbed to touch 7,100 points, marking an intraday gain of approximately 4.5%. Regional chip stocks rallied collectively on expectations of continued global expansion in AI infrastructure investment. Concurrently, an attack by Houthi forces on a Saudi oil tanker sparked supply concerns, sending Brent crude oil briefly near $97 per barrel. The renewed inflationary pressure is weighing on the US bond market.
Alphabet Inc announced a capital expenditure plan that significantly exceeded Wall Street forecasts, causing its shares to fall over 3% in after-hours trading. Tesla Inc and International Business Machines Corp (IBM) also moved lower. Nasdaq 100 index futures edged down 0.2%. European stock markets also pointed to a weaker opening, with investors awaiting the European Central Bank's interest rate decision later in the day.
Where the Markets Stand
South Korea's KOSPI index touched 7,100 points, up about 4.5% for the day. Samsung Electronics Co Ltd and SK Hynix Inc both rose more than 3%. Japan's Nikkei 225 index closed its morning session up 0.5%, while the Topix index gained 0.4%.
Nasdaq 100 index futures were down 0.2%. European equities were also poised for a soft start.
The Japanese yen was little changed at 163.07 per US dollar.
The yield on the US 10-year Treasury note was largely flat at 4.66%.
Japan's 10-year yield rose 3 basis points to 2.765%.
Spot gold fell 0.2% to $4,121.94 per ounce.
Brent crude oil surged as much as 2.5%, touching around $96.50 per barrel.
West Texas Intermediate (WTI) crude oil rose 1.6% to $88.20 per barrel.
Chip Stocks Lead Gains as AI Build-Out Fuels Asia-Pacific Markets
The MSCI Asia Pacific stock index advanced 1%. South Korea's Kospi index, seen as a barometer for AI investment, jumped 3.7% for the day. Samsung Electronics Co Ltd and SK Hynix Inc both gained over 3% as investors bet the two South Korean chip giants will directly benefit from accelerating global AI spending. Japan's Nikkei 225 index ended its morning session up 0.5%, with the Topix index rising 0.4%.
An analyst stated that the rise in capital expenditure signals significant funds flowing into order books in Asia. Investors interpret this as confirmation that AI infrastructure build-out is still accelerating, which is positive news for the underlying supply chain.
Alphabet Inc recently disclosed that its capital expenditure for this year is projected to reach as high as $205 billion. This figure not only exceeds its own prior guidance but is also substantially above Wall Street expectations. Company executives stated on an analyst call that the move aims to expand AI computing capacity to meet persistently rising demand.
AI Trade Enters Critical "Proof of Performance" Phase
Alphabet Inc's earnings report kicked off this round of AI-themed earnings season, initiating a period of intense scrutiny on the returns from AI investments. Last week's tech stock sell-off had already pushed chip stocks broadly into a technical bear market. The earnings reports from major tech companies over the next two weeks will serve as a crucial test to see if hundreds of billions of dollars in AI investment can translate into corresponding returns.
Market attention will now turn to Intel Corp's earnings on Thursday, followed by results from Microsoft Corp, Meta Platforms Inc, and Amazon.com Inc next week. Investors are particularly focused on these companies' latest capital expenditure guidance.
A chief investment officer noted that while AI optimism persists, the responsibility has clearly shifted to management. The focus of future earnings calls will increasingly be on return on invested capital rather than just AI vision.
Middle East Tensions Escalate, Soaring Oil Prices Pressure US Bonds
In energy markets, Brent crude oil surged as much as 2.5%, touching around $96.50 per barrel, its highest level since early June. Iran-backed Houthi forces claimed responsibility for attacks on two Saudi Arabian oil tankers in the Red Sea, heightening market fears of further supply disruptions.
Geopolitical risks are also escalating. A former US president warned that the US would strike Iranian bridges and power facilities if Iran continued attacking ships in the Strait of Hormuz, with Tehran issuing a counter-warning. Diplomatic efforts in the Middle East have effectively stalled, with military strikes continuing unabated.
A strategist at BMO Capital Markets noted that as US-Iran tensions escalate, the persistent rise in energy prices is pressuring the US Treasury market. The yield on the 30-year US Treasury bond has remained above 5% for an extended period, the longest such streak since the financial crisis, reflecting ongoing investor concerns about debt expansion and sticky inflation. The two-year Treasury yield is currently around 4.30%.
The combination of rising oil prices and Middle East tensions is complicating market expectations for the Federal Reserve's policy path. The Fed will hold its policy meeting next week. Money markets currently price in about a 30% probability of a rate hike, with a 70% chance of rates remaining unchanged. The US dollar index fell slightly by 0.2%.
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