Nikkei 225 posts third-biggest point loss on record as AI stocks slump

A third-biggest point loss for the Nikkei

Japan's Nikkei 225 closed at 64,425.95 on Thursday, 15 October, down 3,318.34 points or 4.90% from Wednesday. The fall ranks as the third-biggest point loss on record for the index. The close was the first below 65,000 in about a month, and the broader Topix closed below 4,000 for the first time in more than two months. At 9:32 a.m. the Nikkei had already shed 2,421.93 points, or 3.58%, to 65,322.36, with high-tech issues tied to generative AI bearing most of the selling after overnight losses in their U.S. counterparts.

Inflation data revives rate-hike bets

The sell-off followed inflation figures that came in above forecasts. U.S. producer prices rose 1.3% in September month on month and 6.3% year on year, against expected rises of 0.6% and 5.5%, with higher energy prices accounting for much of the gain. The figures stoked bets on a further Federal Reserve rate increase, which weighed heavily on technology shares. The yield on the 10-year US Treasury was quoted at 5.10% on Thursday, down from 5.26% at the same time on Wednesday, though another estimate put it at about 5.08%. Bond yields eased despite the higher inflation readings, which helped European equities in the afternoon.

AI funding fears hit chip and AI stocks

Wednesday brought the first wave of selling. Shares of a U.S. startup that provides AI data-center capacity tumbled after yields on its corporate bonds surged, feeding worries about the financial health of AI-related companies. The Philadelphia Semiconductor Index fell more than 4%, and from the opening bell in Tokyo, Tokyo Electron and Kioxia Holdings faced heavy selling. In early trading Advantest fell 11%, Tokyo Electron 6.5% and SoftBank Group almost 10%. Credit risk premiums for CoreWeave, Oracle and SoftBank have risen sharply. According to CNBC, 20 leading global AI and chip stocks have lost more than 1,000 billion dollars since the start of the week.

The AI industry leans heavily on interest-bearing debt, including corporate bonds, to fund its huge capital spending. Dan Coatsworth, head of markets at AJ Bell, said investors were becoming wary of that borrowing.

Tech investors are getting uncomfortable with the amount of debt being used to fund the AI build-out.

A Japanese securities house official said these shares were likely to be sold as funding concerns grow when interest rates rise. Over 30% of stocks in the TSE Prime section still rose, as investors moved money into companies less exposed to rate increases, such as pharmaceutical firms and retailers.

Asian and European markets at the close

Seoul's Kospi fell 7.7% in early trading, with Samsung down more than 9%, a drop that ANSA put at roughly 90 billion euros of market value. At the close Seoul lost 7.5% and Tokyo 4.9%, while Shenzhen fell 2.9%, Shanghai 2% and Hong Kong 1.3%. Mumbai bucked the trend with a 1.6% gain. The yen strengthened to 158.01 against the dollar.

European markets opened lower, with Frankfurt down 0.61%, Paris 0.25% lower and London 0.14% weaker. By the close the FTSE 100 had risen 1.1% to 10,840.35, helped by a smaller exposure to technology stocks, while the CAC 40 in Paris gained 0.8% and the DAX in Frankfurt added 0.3%. In Frankfurt chipmaker Infineon lost 4.8% and Siemens Energy, which supplies power to data centres, shed 2.6%. In New York the S&P 500 edged up 0.1% and the Nasdaq Composite slipped 0.4%, with Nvidia down 2.2%, AMD off 4.4% and Broadcom 1.9% lower.

Anthropic revenue and the funding question

The Financial Times reported that Anthropic told investors its third-quarter revenue rose nearly 50% to 16.8 billion dollars, up from 11.5 billion dollars in the second quarter. Growth slowed sharply from the previous quarter, when revenue had more than doubled from about 4.8 billion dollars. Handelsblatt put the quarter-on-quarter increase at about 45%. Coatsworth said the slowdown had added to fears that the AI boom might be hard to sustain.

There is a growing fear that big names in the tech space are running too fast, and they're primed to trip up.

Taiwan Semiconductor Manufacturing reported strong results and an outlook above expectations, yet that has not yet reversed the mood. According to Handelsblatt, the key question is no longer whether AI demand is strong but whether capital markets remain willing to finance the expansion.