Global financial markets faced a turbulent session on Wednesday as a significant sell-off in the tech sector sent shockwaves from Wall Street across Asia’s major stock indexes. Investors grappled with a sharp downturn, raising concerns about the sustainability of high valuations in the tech industry.
Japan’s Nikkei 225 Index experienced a sharp decline, plummeting by as much as 4.7%. This fall was primarily driven by a dramatic 11% drop in shares of Adventest, a leading chip test provider.
In South Korea, the Kospi index was not spared, dropping up to 6.2% as tech behemoths Samsung Electronics and SK Hynix saw their stocks fall by 8.2% and 9.5%, respectively. This decline significantly undermined the Kospi’s impressive 20% gain recorded in October.
Taiwan Semiconductor Manufacturing Company’s shares fell by 3%, while Hong Kong’s Hang Seng Tech Index decreased by as much as 2.9%.
Chris Weston, head of research at Australian brokerage Pepperstone, described the market sentiment as a “gloomy and damp portrayal of risk” in his Wednesday note.
AI hype cycle hits reality check
This market volatility sharply contrasts with the optimism earlier in the year, when investors eagerly invested in artificial intelligence ventures, driving valuations to unprecedented levels.
However, apprehensions are rising that some companies’ valuations may have outpaced their actual technological advancements, leading to potential challenges in meeting ambitious AI objectives despite substantial investments.
The downward pressure on stocks was exacerbated by Michael Burry, the renowned “Big Short” investor, whose hedge fund recently revealed short positions against Palantir and Nvidia.
Veteran analyst Ed Yardeni noted, “Investors are sitting on huge stock market gains, and some might have taken profits today, especially in AI-related stocks, in response to Burry’s filing news.”
On Tuesday, Palantir, an AI-powered data analytics firm, saw its shares drop by 8% following its third-quarter earnings report and Burry’s disclosure, despite posting robust results and positive forecasts.
Other major tech companies such as AMD, Oracle, and Nvidia also suffered losses, contributing to a 2.1% decrease in the tech-heavy Nasdaq 100.
Louis Navellier, founder and chief investment officer at asset manager Navellier and Associates, expressed concerns about an AI market correction, stating, “There is fear of an AI correction, and if it comes, it will sweep the rest of the market with it due to the heavyweight of the leading names.”
Navellier pointed out that, although companies have consistently surpassed earnings expectations this season, investors are becoming increasingly wary of high valuations. Nevertheless, he continues to recommend Nvidia and Palantir.
Despite the market sell-off, Navellier reminded investors, “we can’t lose sight that it was only last week that the indexes were at all-time highs, and profit-taking is the normal course of action.”
Palantir’s stock is still up 152% for the year, while Nvidia, which closed 4% lower on Tuesday, has gained 48% in the same period.
Nevertheless, the market downturn may persist. Pepperstone’s Weston remarked, “Simplistically, there aren’t many reasons to buy here, and until we move closer to Nvidia’s earnings on 19 November, the market lacks a short-term catalyst.”
