Global tech stocks suffer bloodbath as US midterms fuel AI fears

Global tech stocks suffer bloodbath as US midterms fuel AI fears

Technology shares plunged on Friday after an unnerving rout on Wall Street as fears grew that Democrats would accelerate a backlash against AI after their crushing defeat of President Donald Trump’s Republicans in the US midterms. The Tokyo and Seoul stock markets closed out their weeks with losses of six per cent following the Nasdaq’s 5.5pc collapse on Thursday, its worst showing since April last year when Trump unveiled his wide-ranging global tariffs. “The tech sell-off has intensified, with the pain of the brutal sell-off on Wall Street carried straight through to Asia and knocking sentiment in Europe,” said Susannah Streeter, chief investment strategist at Wealth Club. “Big worries are colliding — the build-out of data centres looks set to slow, which risks shredding the spending spree underpinning the boom, right at the time that investors have become super nervous about returns on this massive investment,” she said. The London, Paris and Frankfurt stock markets shed around 2pc nearing the halfway stage despite featuring few technology firms. Elsewhere, the dollar firmed before key US jobs data on Friday, and oil prices steadied following steep declines this week. Futures contracts pointed to a rebound on the Nasdaq later this afternoon, but further declines for the broad-based S&P 500. Data centres have faced broad opposition from US voters across the political spectrum, and many midterm winners have pledged to put the brakes on such projects. Analysts said investors were also spooked by a call from progressive US Senator Bernie Sanders for a national moratorium on their building. The results compounded already heightened fears about the hundreds of billions firms had pumped into the sector and when they would see a return, while the recent spike in borrowing costs also fuelled concerns about their financial position. Bloomberg said the Philadelphia Semiconductor Index had collapsed around 16pc this week, putting it on course for its worst run since April last year. On Seoul’s Kospi stocks index, chip giant SK hynix slumped 10pc and its rival Samsung lost 6.4pc. The Kospi more than doubled in value between the end of December and mid-June, when it hit a record, but is down almost 50pc over the past four and a half months. “The selloff shows that AI stock prices had been built on rosy illusions about the future, and now that illusion is gone,” said Dong Baozhen, chairman of asset manager Lingtong Shengtai. “The US stock market has been the standard-bearer and backbone of the global AI bull run. Now that backbone has snapped. Can AI bull markets elsewhere hold up on their own?” Tokyo dived 6pc on Friday as Japanese tech investor SoftBank gave back more than 10pc, while chipmaker Kioxia collapsed 8.7pc and semiconductor tester Advantest retreated 5pc. A 4.7pc drop for Taiwanese chip giant TSMC dragged down Taipei’s Taiex. “The blood is in the streets, folks,” wrote Neil Wilson, analyst at Saxo Markets, though he added that the sell-off looked “overdone”. “The fear is a total momentum unwind as Democrats pace the frontier and kibosh data centre build-out,” he said. Key figures at around 10:15am GMT London — FTSE 100: Down 2.2pc at 10,542.88 points Paris — CAC 40: Down 1.8pc at 8,057.43 Frankfurt — DAX: Down 2.3pc at 25,709.82 Tokyo — Nikkei 225: Down 6.0pc at 57,434.77 (close) Seoul — Kospi: Down 6.0pc at 5,059.69 (close) Hong Kong — Hang Seng Index: Down 1.3pc at 24,481.86 (close) Shanghai — Composite: Down 1.1pc at 3,649.18 (close) New York — Dow: Down 3.4pc at 51,523.06 (close) New York — Nasdaq: Down 5.5pc at 24,315.00 Brent North Sea crude: Down 0.1pc at $98.20 per barrel West Texas Intermediate: Up 0.1pc at $90.64 per barrel Euro/dollar: Down to $1.118 from $1.122 on Thursday Pound/dollar: Down to $1.340 from $1.345 Dollar/yen: Up at 158.24 yen from 157.83 yen Euro/pound: Up at 83.44 pence from 83.41 pence Sentiment shifts, cracks emerge Investor fear also centred on whether a stalling AI infrastructure expansion could hurt smaller firms whose capacity to raise funds has already been limited by higher interest rates and tighter financial conditions. Neocloud firm CoreWeave, which has become a barometer of investor anxiety over heavy AI spending and borrowing, slumped 10pc, while its five-year credit default swap spreads widened to a record level. “It’s pretty clear there’s been a real shift in sentiment,” said Michael McCarthy, chief executive for Australia and New Zealand at brokerage Moomoo. The selling indicates investors are starting to factor in increased local opposition to data centres, with analysts saying markets have yet to fully consider the cost such building has imposed on communities. Still, some analysts said the selloff was overdone and the bottom was not far off. “Today we are bound to see further liquidation of margin accounts, which suggests we are likely in the final stage of capitulation,” said Allen Huang, a vice president of Mega Financial Holding’s equities trading department. “Even TSMC hit its daily limit down circuit breaker at one point, which typically marks the tail end of a downturn. When TSMC gets sold off, that means all stocks have been thoroughly dumped,” Huang said.