Stocks slump, bonds leap as AI giants’ spending spooks investors

Tech shares slumped in Asia on Friday, the yen rose and bonds surged toward their biggest monthly gain in nearly three years as investors scurried to safety against worries that huge and rising AI spending may not deliver sufficient returns.

Shares in Google parent Alphabet fell 12.6% on Wall Street and slid a little further after hours, to wipe out a withering US$500 billion in market value, as massive AI spending turned the company’s cash flow negative.

An aftermarket plunge of 23% in Intel shares and a drop of 7% in Amazon stocks, as they too burn through cash, drove Nasdaq 100 futures down 1.4% and sent stocks of chipmakers around Asia into a tailspin.

“The market isn’t necessarily questioning whether the AI buildout can be financed,” said Pepperstone analyst Chris Weston. “It’s increasingly questioning whether shareholders will earn an adequate return on the enormous capital being deployed.”

Nerves were also frayed by a potentially record-breaking hack at Binance, the world’s biggest cryptocurrency exchange, which drove down bitcoin, other cryptocurrency prices and stocks including rival exchange Coinbase.

South Korea’s KOSPI slumped 5% for an October fall of more than 17%. Japan’s Nikkei fell 3%.

In China, the blue chip CSI300 headed for its largest monthly fall in a decade, after nearly four months of AI stocks tanking on fears that a slowdown in demand for chips and other data centre equipment could crush revenues.

BOJ expected to hold

Investors’ rush into bonds was further spurred further by the Federal Reserve’s Wednesday decision to keep US interest rates on hold, with no firm projection of when it might need to hike next.

Benchmark 10-year US Treasury yields fell by more than 7 basis points in Tokyo trade on Friday to 4.91% for a fall of some 37 bps through October – the largest one-month drop since December 2023.

Two-year yields dropped by more than 8 bps to 4.57% and Fed funds futures rallied as investors dialled back some expectations for US rate hikes. Yields fall when bond prices rise.

The Bank of Japan is expected to leave rates on hold later on Friday in a decision that will cap a week of major central bank meetings.

The risk-averse mood strengthened haven currencies such as the yen and Swiss franc, with the yen up about 0.2% at 157.47 per dollar and the franc at 0.8213 to the dollar and not far from a one-month high.

The euro inched up 0.1% to US$1.1194.

“Key to watch will be how BOJ characterise the recent global bond market volatility,” said Howe Chung Wan, head of Asian fixed income at Principal Asset Management.

Investors would watch for how the moves influenced the bank’s assessment of the current status of monetary policy, and whether it remains accommodative or is close to approaching neutral, he added.

“This will guide the market for the pace and extent of further tightening in 2027.”

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