Asian chip stocks tumble as global AI trade wavers under rising bond yields

Semiconductor shares across Asia dropped sharply on Tuesday, extending a broader retreat as investors questioned whether massive capital outlays on artificial intelligence can generate the earnings required to justify them, particularly with borrowing costs remaining high.

Selling was steepest in Seoul, where the benchmark KOSPI index tumbled more than 6% in its fifth straight day of declines. South Korea's premier chipmakers bore the brunt of the downturn: Samsung Electronics shed 10%, while SK Hynix fell 8%. In Tokyo, memory manufacturer Kioxia dropped 13%.

How the major chip shares and indices fell

The Asian declines followed a weak session on Wall Street, where the Philadelphia Semiconductor Index slipped 2.7% on Monday. China's STAR Market has now shed more than a third of its value from its July highs, reflecting widespread unease across emerging equity markets.

Higher borrowing costs squeeze infrastructure spending

The immediate pressure stems from debt markets. With 10-year US Treasury yields hovering near 5.2%, funding the high computing power, servers, and data centres demanded by AI development is becoming far more expensive.

Signs of financing strain have begun appearing in capital markets. Last week, Australian data centre operator Firmus shelved a planned $5 billion initial public offering backed by Nvidia after investor appetite softened. In Hong Kong on Tuesday, Tencent Holdings sought bond buyers at roughly 1.15 percentage points over US Treasuries. Japan's SoftBank recently agreed to pay up to 9.75% on a $4.5 billion debt issuance maturing in seven and a half years.

Broadcom's chief executive told an industry gathering in Singapore on Monday that capital availability has become the primary constraint on corporate expansion.

Institutional warnings mount

BlackRock's research unit cut its stance on US equities to neutral on Monday, pointing to potential volatility around capital expenditure on AI and shifting support toward short-term US Treasuries.

The International Monetary Fund echoed those concerns in its latest financial stability report, warning that while artificial intelligence supports economic expansion, evidence is mounting that eventual returns could fall short of expectations, raising the prospect of a wider market correction.

Analysts note that while demand for advanced hardware has not evaporated, investors are no longer underwriting open-ended budgets without clear sight of commercial revenue. Marc Velan, head of investments at Lucerne Asset Management in Singapore, said markets are transitioning into a phase where the commercialisation of technology and tangible investment returns will dictate valuations, punishing firms reliant on cheap credit.