Japan’s SoftBank Group saw its shares drop over 14% on Wednesday in the context of a wider decline in Asian companies linked to AI, mirroring the downturn of U.S. counterparts, as investors expressed caution over inflated valuations within this highly competitive sector.
SoftBank, which has established a diverse portfolio of investments in AI across infrastructure, semiconductors, and application companies, faced a reduction of roughly $32 billion in market capitalization. If these losses persist, the group’s stock will experience its most significant downturn since last August, when it fell by more than 18%, as reported by data from LSEG.
SoftBank holds a controlling interest in Britain’s Arm Holdings, known for its chip designs that are vital for mobile and AI processors, and this year it acquired Ampere Computing to bolster its capabilities in AI data centers. Shares of Nasdaq-listed Arm Holdings declined by 4.71% overnight.
The firm has supported leading developers of AI models like OpenAI, along with startups focused on application-level innovations such as OpusClip, a platform for generative AI video editing, and Tempus AI, which utilizes machine learning for precision medicine applications.
The decrease in SoftBank’s stock has wiped out nearly $50 billion in market capitalization over just two days. The stock had already dropped more than 7% on Tuesday.
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Other tech stocks in Japan also faced declines: semiconductor testing equipment manufacturer Advantest fell by more than 8%, while chipmaker Renesas Electronics dropped by 5.48%, and Tokyo Electron, a manufacturer of chip production equipment, experienced a decline of more than 5%.
South Korean giants in memory chips, Samsung Electronics and SK Hynix, both decreased by nearly 6%. The remarkable growth of chipmakers SK Hynix and Samsung Electronics this year has propelled South Korea’s Kospi Index to new heights.
Taiwan’s TSMC, the preeminent contract chipmaker globally, dropped by 2%. Meanwhile, Alibaba saw a decline of over 3%, and Tencent was down by more than 2%.
These drops followed the approximately 8% decline of U.S. software firm Palantir overnight, despite surpassing third-quarter expectations, as inflated valuations across the AI sector depressed investor confidence. The AI-driven rally has pushed the S&P 500’s forward P/E past 23 — its highest level since 2000, as indicated by FactSet.
The excitement surrounding AI has raised alarms that markets may be experiencing a tech bubble.
“Concerns about an AI correction are prevalent, and if it occurs, it could drag the entire market down alongside it due to the significant influence of the leading companies,” noted seasoned market expert Louis Navellier in a statement.
Some analysts suggest that the valuations of AI firms are increasingly reminiscent of the dot-com bubble of the late 1990s, with stock prices soaring well beyond reasonable profit expectations.
Jared Bernstein, who led the Council of Economic Advisers during Joe Biden’s presidency, pointed out that the portion of the economy allocated to AI investment is nearly a third higher than it was during the internet bubble, asserting that the disparity between earnings potential and expenditure “definitely appears to be bubbly.“
Michael Burry, known for predicting the 2008 financial meltdown, has also drawn attention with his position against AI favorites Palantir and Nvidia. A recent filing from Burry’s Scion Asset Management disclosed substantial short positions in these companies, which are leaders in AI and chip technology.
Alongside Palantir, other major U.S. tech companies also experienced declines overnight: Oracle fell by 4%, chipmaker AMD decreased by nearly 4%, while Nvidia and Amazon also saw drops.
“In my opinion, [the selloff] is temporary. I don’t believe this is the beginning of a more comprehensive market downturn,” stated Dan Ives, managing director and senior equity research analyst at Wedbush. “I view it as a reflection of a lot of anxiety, sort of white-knuckle trading, along with the downturn seen in crypto and others; it was simply a massive risk-off scenario.”
