Asia opened on the back foot as this year's AI favorites lost altitude heading into a crowded earnings stretch. The MSCI Asia Pacific Index slipped 0.9%, on pace for its weakest finish since mid-August, with declines led by Japan and South Korea. The Nikkei 225 dropped 2% as traders returned from a holiday, and the wobble spilled over to the US, where equity-index futures softened in early Asian hours.
Nasdaq 100 futures fell 0.5% after Monday's slide in the underlying index, and a US chipmaker gauge lost 2.7%. The S&P 500 sits about 120% above its 2022 bottom, and whether the four-year rally can last increasingly hinges on profits rising fast enough to justify lofty valuations.
South Korea's Kospi - often treated as a proxy for AI momentum - fell as much as 4.8%, putting it on track for its lowest close since July. Chip heavyweights SK Hynix Inc. and Samsung Electronics Co. each dropped more than 5%, with both hitting their lowest levels since August in early trade. That softness came after a U.S. trading day in which Sandisk Corp. fell 6% and Micron Technology Inc. dropped 3.9%.
The cautionary signals around AI are getting louder. Broadcom Inc. CEO Hock Tan said Monday the boom has drawn investors whose strategies look like gambling, suggesting some do not fully understand their bets. Last week, billionaire Ray Dalio called AI a "classic bubble" nearing a breaking point amid higher interest rates and a growing need to turn wealth into cash. Competitive pressure is building too: China's CXMT said it has advanced a memory-chip design that can store more data, and Meta Platforms Inc. introduced its Muse Wonder AI model.
Chris Weston, Pepperstone's head of research, wrote, "Sentiment appears as negative as we've seen for some time, buyers are stepping aside, and sellers are finding relatively little resistance in pushing prices lower." "The bears have the upper hand across much of the AI trade."
"The dour mood across Asian stocks is going to be tough to overcome in the short term as investors need to wait until Thursday for TSMC's quarterly earnings. That will feel like a distant event to Asian equity traders, who are buffeted by warnings from the likes of Broadcom's CEO who likened many AI investors to casino gamblers." - Mark Cranfield, MLive Strategist
Nomura Asset Management's chief strategist, Hideyuki Ishiguro, said, "Some investors may be concerned about the potential impact of elevated yields on AI-related fundraising and a slowdown in capital expenditure,"
Asian sessions often set the tone before US markets open. Market Briefs covers global trading free every weekday.
Brent crude eased 0.8% to roughly $105.80 a barrel. A Bloomberg dollar gauge largely held the prior session's advance, when it reached the strongest level since mid-May 2025. In currencies, the Indian rupee is in focus after the country's most forceful defense in more than a decade signaled the central bank is willing to do what it takes to prevent a move beyond 97 per dollar.
Earnings season in the US kicks off Tuesday with Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. reporting, followed by Bank of America Corp. and Morgan Stanley on Wednesday. Bloomberg Intelligence estimates S&P 500 companies will post a 25% year-over-year jump in third-quarter profits. Investors are also watching this week's US consumer price index.
Cleveland Fed President Beth Hammack said making policy shifts in small, more routine steps could better anchor inflation expectations, but she did not endorse another hike this month. Glenmede's chief of investment strategy and research, Jason Pride, wrote, "This week's CPI report is likely to be the most important release of data the Fed will see before its October meeting." "Barring a stronger than expected inflation reading, the Fed is likely to take a patient approach to its next rate hike."
When AI darlings stumble, it forces a gut check on how much of this rally is profits versus promises. With the bull market turning four and the S&P 500 almost 120% above its 2022 trough, the next few days put earnings and inflation center stage. If profit growth matches those rich multiples and CPI behaves, the story holds together. If not, expect more chop, especially in chips, which just set the tone for Asia.
When the AI trade cools, it cools everywhere at once. Join Market Briefs free and start the day ahead.
