Nikkei drops over 5% as global chip selloff deepens

Asian markets plunged on Friday, July 17, as a deepening semiconductor selloff spread across the region, with Japan's Nikkei 225 falling more than 5% to its lowest level since June 11 and Taiwan's Taiex tumbling over 4% in morning trade. The rout extended a second consecutive session of steep losses as investors continued unwinding positions tied to the artificial intelligence trade.bloomberg+3

AI Boom Under Scrutiny

The Philadelphia Semiconductor Index has now dropped roughly 19% from its June peak, according to Bloomberg, as mounting skepticism over whether hundreds of billions of dollars in AI infrastructure spending will generate adequate returns drives investors toward the exits. The VanEck Semiconductor ETF ↗ 1.06% fell nearly 4% in U.S. trading on Thursday, extending its weekly decline to almost 7%.forbes+2

TSMC Taiwan Semiconductor Manufacturing Company Limited ↗ 1.08%, a bellwether for AI chip demand, retreated despite posting record second-quarter profit of $22.36 billion — a 77% jump from a year earlier that handily beat analyst estimates. Shares of the world's largest contract chipmaker fell as much as 4.5% in Taipei on Friday after it raised its capital spending outlook, with some analysts flagging concerns over rising costs amid fatigue over the years-long AI boom.bloomberg+2

In Japan, Kioxia, which surpassed Toyota by market capitalization as recently as June, has seen its value roughly halve over the past month. The MSCI Asia Pacific equities gauge dropped 2.1%, while Chinese AI and technology shares also extended losses.bloomberg+4

Overstretched Positioning Blamed

Analysts have attributed the selloff largely to overstretched positioning rather than a fundamental collapse in demand. Morgan Stanley has characterized the decline as a "mid-cycle adjustment rather than a peak," according to Forbes. CBS News reported this week that the selloff underscores "a gnawing anxiety among investors: whether Big Tech's massive spending on artificial intelligence will ultimately pay off."cbsnews+1

The S&P 500 lost 0.5% on Thursday, while the Nasdaq Composite dropped 1.5%, with semiconductor shares leading the decline. South Korean markets were closed for a public holiday. Rising geopolitical tensions and a roughly 12% weekly gain in Brent crude added to risk aversion across the region.mettisglobal+1