Friday was a rough morning for Japan's tech giants. SoftBank Group dropped 8.8%. Tokyo Electron lost 9%.
Advantest slid 9.4%. And Kioxia's shares tumbled more than 14% after a Texas federal jury on Thursday required the company to pay $229 million to Viasat for infringing a patent related to computer memory technology.
Kioxia's steep drop intensified existing unease among investors. The patent verdict, while not crippling for the firm, struck at a time when the entire semiconductor sector was under pressure from a reassessment of AI spending. SoftBank's drop also reflected its heavy exposure to tech startups through the Vision Fund, many of which have yet to turn a profit. The overall Japanese tech sell-off mirrored a global retreat that began on Wall Street, where the Philadelphia Semiconductor Index fell sharply.
The Nasdaq Composite dropped 1.47% on Thursday, pressured by renewed selling in semiconductor stocks. The VanEck Semiconductor ETF declined by nearly 4%. Arm Holdings dropped over 5%, and shares of Micron, AMD, and Broadcom each fell by more than 5%.
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SK Hynix shares traded in the U.S. plummeted more than 13%. South Korean markets were closed on Friday for a national holiday. This global rout underscored how interconnected the chip industry has become - when U.S. tech stocks decline, Japanese and other Asian semiconductor names often follow suit within hours.
This sell-off marks a sharp reversal for a sector that had been riding high on AI enthusiasm. Since late 2022, the Philadelphia Semiconductor Index had more than doubled, driven by expectations of surging demand for AI chips. However, recent earnings reports have begun to show signs of slowing momentum, leading investors to question whether lofty valuations are justified.
TSMC increased its annual capital spending outlook to a range of $60 billion to $64 billion, compared with a previous forecast of $52 billion to $56 billion. However, market participants shifted attention to worries that the sector's heavy spending spree was becoming harder to rationalize.
Andrew Jackson, strategist at Ortus Advisors, said, "Another wipe out for U.S. tech and AI with recent momentum winners taking another leg lower after TSMC's earnings yesterday in Asia were not seen as strong enough to justify further upside for the sector and raising concerns over excessive spending."
Jackson said the sell-off reflected "an unwinding of crowded AI momentum trades rather than a deterioration in the sector's long-term fundamentals."
The current downturn comes after a long stretch of intense optimism surrounding AI stocks. Since late 2022, massive interest in generative AI has driven share prices of chipmakers and tech firms to record highs, with many companies trading at elevated price-to-earnings ratios. Some market observers had cautioned that any sign of slowing growth could trigger a sharp correction, as seen in Friday's trading.
The patent ruling against Kioxia was an isolated event but it compounded the negative mood already sweeping the industry.
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