AI trade reversal pierces star stocks across Asia

The recent downturn in US technology shares, particularly semiconductors, has highlighted how rising financing costs could impede AI infrastructure development. With oil prices surging to US$110 a barrel, inflation concerns are increasing, putting pressure on the trillions of dollars being borrowed for AI projects. This contributed to an eight-session rout in US semiconductor shares and the NASDAQ 100's worst week since April last year.

For Asia, where chipmakers and hardware suppliers have been major beneficiaries of the AI surge, the implications are significant. A Goldman Sachs Group Inc basket of regional AI hardware stocks tumbled 11 percent last week. This decline occurred despite an upbeat revenue outlook from Taiwan Semiconductor Manufacturing Co (TSMC), suggesting that concerns over AI spending are spreading across the hardware supply chain.

The core concern has shifted from whether demand for AI chips will hold up to whether hyperscalers and neocloud operators can continue to finance the infrastructure needed to deploy them. GAM Investment Management (Switzerland) AG fund manager Jian Shi Cortesi noted that "rising borrowing costs could make infrastructure projects harder to finance and delay spending." This could trigger a reset in Asian suppliers' earnings expectations and valuations, as seen with neocloud provider CoreWeave Inc, whose bonds signaled distress and shares dropped significantly amidst questions about its expansion financing.