Global tech selloff deepens amid growing concerns over data center financing

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Global tech selloff deepens

Highlights

Asian technology stocks plunge as AI financing concerns intensify.
Rising interest rates expose risks in debt-funded data center expansion.
Strong chipmaker earnings fail to prevent a broader sector selloff.

MSCI's broad Asia-Pacific index excluding Japan dropped 3.4%, extending its losing streak to four sessions, while South Korea's Kospi plunged more than 8% and Japan's Nikkei 225 declined 5.4%. S&P 500 futures slipped 0.4% as investors reassessed the cost of financing AI infrastructure after unexpectedly strong U.S. inflation data, Reuters reports.

Asian chipmakers bear the brunt of selling

South Korean semiconductor companies suffered some of the steepest losses. Samsung Electronics dropped 9.9%, while SK Hynix and Japan's Kioxia Holdings each fell more than 11%. SoftBank Group declined over 9%, and Taiwan Semiconductor Manufacturing Company lost approximately 2%.

The Kospi approached bear-market territory after falling roughly 20% from its September peak. South Korea's exchange temporarily suspended trading for 20 minutes as selling intensified, while foreign investors withdrew substantial funds from local equities.

The downturn followed another difficult Wall Street session Wednesday. The S&P 500 lost 1.1%, the Nasdaq Composite fell 1.9%, and semiconductor shares extended their decline to a sixth consecutive session.

Higher-than-expected September U.S. inflation revived expectations of tighter Federal Reserve policy, increasing pressure on companies whose growth plans depend heavily on borrowing.

Data center financing becomes a central concern

The retreat reflects growing scrutiny of debt-funded AI expansion rather than a clear deterioration in demand for computing power. Investors have become increasingly sensitive to the cost of financing large data centers, advanced chips, and cloud infrastructure.

Credit markets are showing similar strain. Default insurance costs have risen for Oracle, SoftBank, and CoreWeave, while CoreWeave bonds maturing in 2032 have fallen to approximately 78 cents on the dollar.

Those developments have raised questions about whether anticipated AI revenue can support the substantial investment required to build computing capacity.Strong operating results have offered limited protection. TSMC reported a 69% increase in third-quarter net profit to a record T$763.1 billion, exceeding expectations even as its shares declined.

Higher interest rates challenge AI valuations

The broader market reaction suggests investors are distinguishing between strong demand for AI technology and the financial risks of building the infrastructure to support it. Companies with substantial borrowing needs are particularly vulnerable when interest rates rise, even if their earnings outlook remains favorable.

Government bonds attracted defensive buying as technology shares declined. The U.S. 10-year Treasury yield fell 8.2 basis points to 5.099%, reflecting increased demand for safer assets.

For equity markets, the central issue is whether AI companies can generate sufficient returns to justify their capital spending and financing costs. Until borrowing conditions stabilize, even strong chipmaker earnings may struggle to reverse the pressure on technology valuations.

We also reported oil market risks renewed pressure as Saudi and Russian energy infrastructure comes under threat.

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