Major stock markets across Asia experienced significant declines on Thursday, following a sharp sell-off on Wall Street. The downturn was primarily driven by growing investor anxiety over the enormous sums of money being poured into artificial intelligence (AI) and fears that a speculative bubble in the tech sector may be forming.
Tech Sector Under Pressure as AI Hype Cools
Investor sentiment took a hit after the US Federal Reserve hinted last week that it might pause its interest rate cuts next month. This, combined with increasing scrutiny over the returns from massive AI investments, has dampened hopes for a strong end-of-year market rally. While earlier rate cuts had boosted stocks, there is now concern that this support could be withdrawn.
The focus has sharply returned to the technology sector. There is rising speculation that a bubble has formed and could be close to bursting. Although software and chip companies have driven markets to record highs this year, many investors are now questioning whether their valuations have become overstretched and when the cash invested in AI will start generating real returns.
These worries intensified on Wednesday after a report revealed that private capital group Blue Owl had pulled out of a planned $10 billion data centre project with market giant Oracle, casting doubt on the venture. This news followed disappointing earnings reports from both Oracle and chip leader Broadcom last week.
Market Reaction: From Wall Street to Asia
The reaction on US markets was severe. Oracle's stock plunged more than five percent, while other sector heavyweights like Broadcom, Nvidia, Alphabet, and Advanced Micro Devices also tumbled. The tech-heavy Nasdaq index dived 1.8 percent, and the broader S&P 500 fell more than one percent.
Michael Hewson of CMC Markets commented that the "surge in valuations has... prompted fears of a bubble in the sector", noting wild swings due to year-end profit-taking. He added there is chatter about a potential market reset for AI winners and losers in 2026.
Asian markets closely tracked the US losses. In Japan, the Nikkei 225 shed more than one percent, with tech firms like Renesas and investment giant SoftBank leading the decline. Seoul's market also fell over one percent. Losses were recorded in Hong Kong, Sydney, Singapore, Wellington, Taipei, Manila, and Jakarta. Only Shanghai's market finished flat.
Oil Prices Rally on Geopolitical Tensions
In commodities, oil prices climbed for a second straight day, rising more than one percent. The increase followed a US military strike on a vessel it said was engaged in drug trafficking in the Pacific Ocean. This action heightened existing market concerns about former President Donald Trump's plans for Venezuela, after he ordered a blockade of "sanctioned" oil tankers heading to and from the country.
Venezuelan President Nicolas Maduro has accused the US of seeking regime change rather than genuinely aiming to stop drug trafficking. These geopolitical developments provided further support for crude prices during the trading session.
Key market figures as of around 0230 GMT were:
- Tokyo - Nikkei 225: DOWN 1.0% at 49,006.89
- Hong Kong - Hang Seng Index: DOWN 0.2% at 25,414.87
- Shanghai - Composite: FLAT at 3,870.37
- West Texas Intermediate oil: UP 1.7% at $56.90 per barrel
- Brent Crude: UP 1.6% at $60.61 per barrel
- New York - Dow: DOWN 0.5% at 47,885.97 (previous close)
