Asian markets declined Friday as concerns over the scale and timeline of corporate artificial intelligence investments intensified, overshadowing otherwise positive corporate earnings and amplifying volatility across global asset classes.
The session was triggered by Microsoft’s announcement of increased spending on AI infrastructure, which sparked fears that returns on such investments may be delayed. This led to a sharp 12% fall in Microsoft shares, its worst performance since the COVID-19 market crash, and accounted for a significant portion of the S&P 500’s decline. Analysts noted heightened anxiety regarding rising capital expenditures, slower growth in its Azure cloud division, and a prolonged path to monetising AI. These developments have raised questions about whether current technology valuations, which have driven markets to record highs, are becoming stretched, suggesting a potential bubble.
The negative sentiment spread to Asia, where most major indices fell. Hong Kong’s Hang Seng and Shanghai’s Composite both dropped more than 1%. Tokyo’s Nikkei 225, Sydney, Singapore, Taipei, and Manila also closed lower. Seoul and Wellington were notable exceptions, posting gains. Jakarta’s market remained under pressure after a sharp two-day sell-off, following a warning from index compiler MSCI about reviewing Indonesian stocks over ownership concerns. MSCI’s subsequent decision to pause any increases in Indonesian stock weightings, coupled with fears of a potential downgrade to frontier market status, threatens an outflow of foreign capital.
Commodity markets also reversed recent gains. Gold retreated to around $5,200 per ounce after peaking above $5,595, while silver fell from more than $121 to approximately $110. The pullback was partly attributed to a slight strengthening of the US dollar, which had previously weakened on signals from former President Donald Trump that he was comfortable with a softer currency. Oil prices were volatile, with Brent crude falling over 1% to $69.91 per barrel, while West Texas Intermediate rose 1.5% to $64.14. This fluctuation followed Trump’s military posturing towards Iran and his warning of possible strikes if a new nuclear deal is not reached, though some price pressure eased on hopes for a de-escalation of tensions.
Currency markets reflected a modest dollar recovery, with the euro, pound, and yen all weakening against the US currency. The geopolitical backdrop remains fragile, with investors monitoring the US-Iran situation closely, as any conflict in the oil-rich region could severely disrupt supplies and reignite inflationary pressures.
The week has been characterised by sharp swings as traders assessed a confluence of factors: a fluctuating dollar, tariff threats, the prospect of a US government shutdown, and now, profound doubts about the immediate profitability of the AI boom. While strong earnings from firms like Meta, Samsung, and SK Hynix had offered support earlier, the sector’s momentum is now under scrutiny. The interplay between technological optimism, corporate spending realities, and geopolitical risk will likely continue to drive market direction in the near term.
