Tech Stock Sell-Off Spreads to Asia... Concerns Grow Over AI Potential

There is an outlook that stock markets in the Asia region may decline, following the drop in the New York stock market in the United States. The concern is that investors' doubts about the excessive spending of major U.S. technology companies and the profitability of artificial intelligence (AI) could spread across Asian stock markets as a whole.

On the 4th (local time), stock index futures in Hong Kong, South Korea, and Australia all fell in early trading. The index of Chinese companies listed in the United States dropped 2%. This reflects the continued impact of the previous day’s 0.5% plunge in the U.S. Standard & Poor’s (S&P) 500 Index. Adding the previous day’s decline, the Nasdaq 100 Index recorded its worst two-day fall since October last year. The Nasdaq Index fell below its 100-day moving average, and some technical analysts interpreted this as a sign of further losses.

There was also a wave of selling in software (SW) stocks. Alphabet, Google’s parent company, plunged more than 7.5% in after-hours trading as its spending outlook exceeded expectations, before partially recovering. Even so, the so-called Magnificent Seven, the seven leading U.S. big tech stocks, fell 1.8%.

The iShares MSCI USA Momentum Factor exchange-traded fund (ETF), which invests in large technology stocks such as Nvidia and Micron, tumbled 3.7%, and the Goldman Sachs basket that buys high-beta momentum stocks and sells the opposite names plunged 9.8%.

Bloomberg News analyzed that this tech-led selling reflects investors’ concerns about technology stock valuations, high spending, and the possibility that AI could erode existing software business models. In addition to the software sector, whose outlook is bleak due to the spread of generative AI, AI and semiconductor themes are also becoming targets of heavy selling.

Kyle Rodda, a market analyst at Capital, said, "Both optimism and pessimism can coexist regarding this move," adding, "On the one hand, technology stocks may potentially have been overvalued, but on the other hand, the broadening of market strength into other sectors is also a signal that economic fundamentals are improving." Scott Welch, Chief Investment Officer (CIO) at Sertiuty, said, "Since the end of last year, the market has started to distinguish who the winners and losers are in the AI space," and added, "That trend seems to be continuing now as well, but it is nothing more than a natural rotation."

Matt Maley, chief market strategist at the U.S. asset management firm Miller Tabak, said, "The news for software stocks is getting worse by the day," but advised, "Regardless of where they head in the medium to long term, they are getting ready for a rebound in the short term, so investors should be cautious about making short-term bearish bets."