AI trade reversal pierces star stocks across Asia

VULNERABILITY: Major semiconductor manufacturers’ earnings depend on continued investment in the building of infrastructure enabling use of their products

A deepening selloff in US technology stocks is exposing a new vulnerability in Asia’s artificial intelligence (AI) trade: Mounting financing costs could choke off the spending needed to sustain the boom, threatening earnings across a supply chain that has powered the region’s stock market rally.

The pressure intensified last week as oil surged to US$110 a barrel for the first time since May, stoking inflation concerns, and investors turned their attention to the trillions of dollars being borrowed to build AI infrastructure. An eight-session rout in US semiconductor shares — the longest since 2008 — wiped about 16 percent off the Philadelphia semiconductor index, while the NASDAQ 100 suffered its worst week since April last year.

For Asia, where chipmakers and the hardware suppliers that make printed circuit boards, precision components and manufacturing equipment have been among the biggest beneficiaries of the AI frenzy, the implications could be significant heading into today’s open.

A Goldman Sachs Group Inc basket of regional AI hardware stocks tumbled 11 percent last week, its steepest decline since mid-July. The selloff showed little sign of abating despite an upbeat revenue outlook from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), underscoring how concerns over AI spending are spreading across the hardware supply chain.

Some of Asia’s standout performers were hit particularly hard in the maelstrom. Nan Ya Plastics Corp (南亞塑膠), a maker of printed circuit board (PCB) materials and the best-performing stock on the MSCI Asia-Pacific Index this year, tumbled 12 percent from a record high. PCB maker Unimicron Technology Corp (欣興電子), the index’s second-best performer, fell 14 percent in a week, while Samsung Electro-Mechanics Co, which makes an array of electronic components, plunged 23 percent.

“Financing costs are like gravity for the AI boom,” GAM Investment Management (Switzerland) AG fund manager Jian Shi Cortesi said. “Rising borrowing costs could make infrastructure projects harder to finance and delay spending. Even a delay could trigger a reset in Asian suppliers’ earnings expectations and valuations.”

The concern is no longer just whether demand for AI chips would hold up. It is whether hyperscalers and neocloud operators can keep financing the infrastructure needed to deploy them — and whether the expected returns would justify the scale of investment.

Bonds of neocloud provider CoreWeave Inc sank to levels signaling distress last week as investors questioned whether AI demand and revenue could support the borrowing behind its expansion. Its shares slumped 12 percent on Friday, resulting in the stock’s worst week since November last year with a 25 percent drop. The episode brought the financing risks of the boom into sharper focus, with surging oil prices adding to worries that inflation could keep borrowing costs elevated.

While TSMC, SK Hynix Inc and Samsung Electronics Co supply the chips and memory needed for AI computing, their earnings depend on continued investment in the infrastructure that uses those products. Component makers and equipment suppliers face the same underlying risk, potentially with less visibility into the timing of individual projects.

Gartner Inc has warned that more than US$3.5 trillion of AI infrastructure spending could be at risk of impairment by 2030 as investment threatens to outpace the revenue needed to justify it.

“If hyperscalers and neoclouds cannot fund their data center investments, that would translate into lower orders for Asia enablers like TSMC, Samsung and SK Hynix,” Union Bancaire Privee SA managing director Vey-Sern Ling (凌煒森) said. “Given how jittery the market is, the read-through would be very negative for the semi picks and shovels.”

The stakes are particularly high for Asian equities, where the AI buildout has become a dominant investment theme. TSMC, Samsung and SK Hynix together account for nearly one-third of the MSCI Asia ex-Japan Index and about one-fifth of the index provider’s broader Asian gauge, with their suppliers adding to the region’s exposure to the same spending cycle, data compiled by Bloomberg showed.

Still, there is little evidence so far that financing strains have translated into weaker orders, and some investors remain confident that robust demand would sustain the sector.

“We are not worried about the ongoing chip selloff,” as demand for AI remains strong, Federated Hermes Ltd global emerging markets head Kunjal Gala said.