SINGAPORE, Oct 30 (Reuters) – Tech shares sank on Friday, while the yen rose and bonds surged toward their biggest monthly gain in nearly three years, as investors scurried to safety from worries that huge and rising AI spending may not deliver sufficient returns.
Shares in Google parent Alphabet fell 12.6% on Wall Street and slid a little further after hours, to wipe out a stunning $500 billion in market value, as massive AI spending turned the company’s cash flow negative.
An aftermarket plunge of 23% in Intel shares and a drop of 7% in Amazon stocks, as they too burn through cash, drove Nasdaq 100 futures down 1.9% and sent stocks of chipmakers around Asia into a tailspin.
“The market isn’t necessarily questioning whether the AI buildout can be financed,” said Pepperstone analyst Chris Weston. “It’s increasingly questioning whether shareholders will earn an adequate return on the enormous capital being deployed.”
That led to a broad selloff in technology stocks in Asia. South Korea’s KOSPI fell more than 3%, for a total fall of nearly 16% in October. Japan’s Nikkei fell over 2%, on course for a decline of 5% this month.
Earnings from big tech firms this week have raised the stakes in the AI trade as investors fear the infrastructure race is not only straining the industry but affecting consumers, as price hikes squeeze global demand for devices like smartphones and PCs.
Nerves were also frayed by a potentially record-breaking hack at Binance, the world’s biggest cryptocurrency exchange, which drove down bitcoin, other cryptocurrency prices and stocks including rival exchange Coinbase.
The world’s biggest cryptocurrency, bitcoin hit a six-week low before cutting losses to trade 0.9% lower at $78,171.16.
“I suspect the negative price action still has some way to go,” said Geoffrey Kendrick, head of digital assets research at Standard Chartered. “Only after assets are unfrozen and more detail of the hack emerges will we find a new base.”
NO SURPRISE FROM BOJ
The Bank of Japan left interest rates on hold, which was expected and did not trigger major currency or bond moves, but Nikkei futures slipped after the central bank unveiled plans to sharply accelerate exchange-traded fund sales next year.
“While this may initially spook markets, I actually think this is a positive development since the BOJ feels confident enough with the economy and market,” said David Chao, global market strategist for Asia-Pacific at Invesco.
The central bank declared victory in a nearly 14-year battle to hit its price target and signalled vigilance against inflation risks, suggesting the next rate hike could come as soon as December.
In China, the blue chip CSI300 headed for its largest monthly fall in a decade, after nearly four months of AI stocks tanking on fears that a slowdown in demand for chips and other data centre equipment could crush revenues.
Investors’ rush into bonds was further spurred by the Federal Reserve’s Wednesday decision to keep US interest rates on hold, with no firm projection of when it might hike next.
Benchmark 10-year US Treasury yields fell by more than 7 basis points in Tokyo trade on Friday to 4.91% for a fall of some 37 bps through October — the largest one-month drop since December 2023.
Two-year yields dropped by more than 8 bps to 4.57% and Fed funds futures rallied as investors dialled back some expectations for US rate hikes. Yields fall when bond prices rise.
The risk-averse mood strengthened haven currencies such as the yen and Swiss franc, with the yen up about 0.3% at 157.20 per dollar and the franc at 0.8213 to the dollar and not far from a one-month high.
The euro inched up 0.1% to $1.1194.
In commodities, oil prices rose on Friday, poised for a fourth monthly gain, as an attack on a tanker in the key Strait of Hormuz waterway highlighted continuing supply risks from the US-Israeli war on Iran. [O/R]
(Reporting by Tom Westbrook and Ankur Banerjee; Editing by Tom Hogue andClarence Fernandez)
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