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There was panic in the international stock markets on Friday when major indices from America to Asia recorded a huge fall. The biggest reason for this global selloff is the sharp profit booking in the shares of Artificial Intelligence (AI) and Semiconductor (Chip) sectors, which have been the darling of the market for a long time. Even before the start of regular trading in the US market, Dow Futures fell by more than 400 points, while Nasdaq Futures saw a huge fall of more than 450 points. This wave of decline, which started from the American market, also engulfed the Asian markets, due to which a period of heavy selling started in the shares of big tech and chip companies.
Panic started from American Wall Street: Nasdaq recorded a big fall
This recession in the global market started from the American market Wall Street, where heavy pressure was seen on the shares of chip and technology sector on Thursday. Due to this all-round selling, the tech-heavy Nasdaq Composite index closed down 1.5%. Additionally, the S&P 500 index fell 0.5%, while the Dow Jones Industrial Average closed down 105.67 points, or about 0.2%. This disappointing performance of the American markets completely spoiled the sentiments of the investors as soon as the Asian markets opened on Friday morning.
SoftBank and Tokyo Electron crash in Japanese market: Shares fell by 9%
The biggest and immediate impact of this decline in the American market was seen on the Japanese stock market. There was strong selling in major stocks related to Japan’s technology and chip sector. Shares of SoftBank, the biggest name in AI and tech investment, recorded a huge fall of 9.2%. Apart from this, the shares of Tokyo Electron, a major company of chip making machines, fell by about 9% and the shares of Advantest, a company making chip testing equipment, fell by 9.4%. At the same time, Japan’s main index Nikkei 225 was trading down about 0.6% and Topix was down 0.3% in early trading, but the level of decline in select tech and AI stocks was much more severe.
Why did investors suddenly start running away from AI and chip stocks?
According to market experts, the reason behind this sell-off is the increasing concerns of investors and rising doubts regarding AI Trade. In the last few years, investors had invested heavily in artificial intelligence (AI), data centers and semiconductor companies, due to which the valuations of these companies had reached very high levels. Now a big question is arising in the minds of investors that when and how soon will this huge expenditure of billions of dollars being made by tech giants on AI infrastructure translate into real profits. Due to this doubt and uncertainty, investors have started booking profits in these shares.
Big fall in VanEck Semiconductor ETF (SMH): Increased pressure on the entire chip sector
The severity of this ongoing weakness in the semiconductor sector can be understood from the movements of the world’s largest chip ETF, VanEck Semiconductor ETF (SMH). This ETF fell by about 4% on Friday, whereas in the entire week it has registered a huge decline of 6.9%. If this trend of decline continues like this, it will be the third biggest weekly decline of this ETF in the last four weeks. Additionally, shares remained under pressure despite Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip maker, reporting better-than-expected second quarter results as the company raised its capital expenditure guidance to meet future AI demand.
Japanese chip company Kioxia gets a blow from the court: Shares slipped more than 14%
Friday proved to be a very bad day for the shares of Japanese memory chip manufacturer Kioxia and its shares fell by more than 14%. In fact, a federal jury in Texas, USA, has ordered the company to pay a huge fine of $229 million in damages to Viasat in a case of patent infringement related to computer memory technology. In view of the legal and financial crisis faced by the company after this judicial decision, investors sold the shares heavily. On the other hand, the South Korean market was closed on Friday due to holiday, but earlier on Thursday, the shares of the leading AI memory chip manufacturer SK Hynix also closed down by more than 11%.
Netflix’s results also spoiled the mood: despite good performance, shares fell by 8%
Not only the chip sector, but the quarterly results of America’s entertainment and streaming giant Netflix also weakened the sentiment of the tech sector. The financial results announced by Netflix for the second quarter, although they were exactly in line with market expectations, did not contain any new or explosive surprises for investors. Netflix shares fell more than 8% soon after. Market analysts say that when there are very high expectations attached to a big tech stock, even the expected results prove to be insufficient to save the stock from falling.
Is this the beginning of a major recession? Important analysis of Chief Strategist of Ned Davis Research
Amidst the turmoil in global markets, the saving grace is that the S&P 500 index is still trading only 1% below its all-time high (record level) made in June. Ed Clissold, Chief US Strategist of Ned Davis Research, believes that the market not completely falling apart shows that this situation is not a sign of any major decline or recession. According to Clissold, the pace of the global economy may slow down slightly in the near term, but there is no possibility of a major economic crisis. This decline is actually a period of healthy consolidation and profit-booking in some overvalued sectors, which will ultimately make the market more balanced and strong.