Tech market sell-off deepens amid fears over US inflation and AI debt

Technology-linked shares fell across major markets, led by Asia. South Korea’s Kospi 200, heavily weighted toward memory-chip companies, dropped 8.1% to a six-month low. Trading was halted several times by circuit breakers. Japan’s Nikkei 225 fell 4.9% after sharp declines in chipmaker Kioxia and SoftBank.

The weakness followed a Wall Street sell-off. The Nasdaq Composite lost 1.9%, while the S&P 500 fell 1.1%, its worst performance since July. China’s CSI 300 dropped as much as 2.4%, and Taiwan’s TSMC declined 2% despite reporting its sixth straight quarter of profits.

European shares also opened lower, and US Nasdaq 100 futures pointed to further technology losses. Investors were reacting to US inflation rising to 3.7% in September, increasing expectations of Federal Reserve rate hikes. Concerns about an AI share-price correction added another source of pressure.

The declines were large enough to unsettle markets across several regions. South Korea’s Kospi 200 fell 8.1%, reaching a six-month closing low. Circuit breakers temporarily stopped trading at various points. Japan’s Nikkei 225 fell 4.9%, while the Nasdaq Composite and S&P 500 dropped 1.9% and 1.1% respectively.

Individual technology companies suffered even sharper falls. Memory-chip maker Kioxia declined 11%. SK Hynix plunged nearly 11%, and Samsung Electronics dropped 9.5%. SoftBank, a major investor in Axiom, fell 10%. TSMC lost 2% despite announcing its sixth consecutive quarter of profits.

Other markets also weakened. China’s CSI 300 fell as much as 2.4%, while the Europe Stoxx 600 opened down 0.4%. The losses show that the selling was not limited to one company or country. It spread through chipmakers, AI-linked investors, technology indexes, and broader markets.

AI-linked shares are stocks whose businesses or investments are closely connected to artificial intelligence. They include companies making the memory chips and other technology needed for AI systems. They also include investors with significant stakes or relationships in AI businesses, such as SoftBank, a big investor in Axiom.

Chipmakers belong because AI systems require substantial computing hardware and memory. Their share prices can rise when investors expect strong AI demand. But that connection also makes them vulnerable when traders question future AI growth or fear that AI valuations have become excessive. SK Hynix, Samsung Electronics, Kioxia, and TSMC are examples in the article.

The article shows that the group extends beyond chip factories. SoftBank fell 10% as AI-related concerns spread, while the IMF warned that an AI share-price crash could affect global financial stability. Falling prices can therefore hit both companies supplying AI technology and investors exposed to it.

The consumer price index, or CPI, measures changes in the prices consumers pay for a broad basket of goods and services. The article reports that US inflation reached 3.7% in September. This was higher than expected and the fastest increase since the CPI rate reached 4.2% in May.

A 3.7% inflation rate means the measured consumer-price basket was 3.7% higher than a year earlier, using the usual annual inflation interpretation. Households may find everyday spending more expensive, while businesses can face higher costs for inputs, wages, transport, and supplies. The article says the rise was broad-based across the consumer basket.

That breadth mattered to financial markets. Investors were less able to dismiss the increase as a temporary fuel shock. Instead, they saw evidence of wider price pressure. The result was renewed concern that the Federal Reserve might raise interest rates, adding pressure to highly valued and indebted technology companies.

Central banks use interest rates to influence borrowing, spending, and investment. When inflation is higher than expected, policymakers may worry that price increases are becoming persistent. Raising the Federal Reserve’s policy rate makes borrowing more expensive and can reduce demand, helping slow inflationary pressure.

The September US data showed inflation at 3.7%, above forecasts. Deutsche Bank analysts said markets had experienced a tumultuous period because a strong CPI reading was followed by fears about the AI trade. The article also notes that the increase was broad-based, not simply caused by fuel prices.

Investors therefore revised their expectations for monetary policy. Some were pricing in another Federal Reserve increase as soon as the end of the month. That possibility pushed bond and equity markets to reassess company valuations, especially in technology. Higher expected rates can make risky, heavily indebted businesses less attractive and contribute to further share-price selling.

Higher interest rates raise the cost of borrowing. A highly indebted AI company must then pay more to refinance loans or service floating-rate debt. More cash goes toward interest, leaving less for chips, data centres, research, hiring, and expansion. Companies with heavy debt can therefore become more financially fragile.

AI projects may require large spending before they generate profits. If financing becomes more expensive, a project’s expected returns may no longer justify its cost. Investors can also become less willing to fund businesses that depend on continued borrowing. The article describes the AI sector as heavily indebted and links rate fears to the sell-off.

This vulnerability matters because AI enthusiasm has supported many related share prices. If investors fear weaker growth or rising financing costs, they may sell both AI companies and chipmakers supplying them. The IMF warned that an AI share-price correction could have global consequences, particularly for US and Asian markets.

A company’s value reflects both current results and expected future profits. When interest rates rise, investors apply a larger discount to profits arriving far in the future. Those distant earnings are worth less today. This especially affects growth companies whose valuations depend heavily on expansion and profits expected years from now.

For AI companies, the mechanism can work twice. Higher rates reduce the value of projected earnings and increase the cost of financing large projects. Investors may then sell AI shares, chipmakers, and funds or companies exposed to the sector. The article’s declines in SoftBank, SK Hynix, Samsung Electronics, and technology indexes illustrate this connected reaction.

The risk can spread beyond the original stocks. Falling prices may damage investors holding those shares and pressure markets where technology has a large weight. The IMF said the consequences of an AI correction could be global. It identified Asian markets as especially exposed, while the UK and eurozone might be more insulated.