Taiwan's Taiex Falls 2.47 Percent as AI Spending Fears Hit Asian Chip Stocks
The Taiex dropped 1,145.90 points to 45,222.43 in Friday trade in Taipei. Alphabet fell 12.6 percent on Wall Street, Intel plunged 23 percent after hours and Amazon fell 7 percent, and chip shares across Asia followed them down.
Key points
- Taiwan's benchmark Taiex index fell 2.47 percent on Friday, dropping 1,145.90 points to 45,222.43 from a previous close of 46,368.33.
- Taiwan sits in the middle of the global chip supply chain, and TSMC alone accounts for a large share of the index.
- Pepperstone analyst Chris Weston, quoted by Reuters, said the market is not necessarily questioning whether the AI buildout can be financed.
Taiwan's benchmark Taiex index fell 2.47 percent on Friday, dropping 1,145.90 points to 45,222.43 from a previous close of 46,368.33. Selling was heaviest in the technology shares that carry the most weight in the index. Taiwan reporting put the intraday low at 45,090.71, a fall of more than 1,277 points, with TSMC down NT$45 at NT$2,370, MediaTek down NT$185 at NT$3,860, Hon Hai down NT$4 at NT$244 and Delta Electronics down NT$130 at NT$1,350 during the session.
Why Taipei fell so hard
Taiwan sits in the middle of the global chip supply chain, and TSMC alone accounts for a large share of the index. When investors in New York sell the big American buyers of chips and data center equipment, Taipei feels it the next morning. That is what happened on Friday. Reuters reported that tech shares slumped across Asia as investors moved to safety over worries that huge and rising AI spending may not deliver sufficient returns. South Korea's Kospi slumped about 5 percent and Japan's Nikkei fell about 3 percent in the same session, Reuters said.
Pepperstone analyst Chris Weston, quoted by Reuters, said the market is not necessarily questioning whether the AI buildout can be financed. It is increasingly questioning whether shareholders will earn an adequate return on the enormous capital being deployed.
The trigger came from US earnings
Shares in Google parent Alphabet fell 12.6 percent on Wall Street, wiping out about $500 billion in market value, after massive AI spending turned the company's cash flow negative, Reuters reported. Alphabet's capital spending reached $51.4 billion in the third quarter, up 114 percent from a year earlier, and free cash flow fell to minus $9.1 billion. An after hours plunge of 23 percent in Intel shares and a drop of 7 percent in Amazon shares, as both companies also burn through cash, drove Nasdaq 100 futures down 1.4 percent and sent chip stocks around Asia into a tailspin, Reuters said. The Nasdaq Composite had already fallen 1.38 percent to 26,184.72 in the US session, and the Philadelphia Semiconductor Index fell 1.42 percent to 11,518.20.
What happens next
The Bank of Japan was expected to leave rates on hold later on Friday, capping a week of central bank meetings after the Federal Reserve kept US rates on hold on Wednesday, Reuters reported. Investors also moved into bonds, and benchmark 10 year US Treasury yields fell by more than 7 basis points in Tokyo trade to 4.91 percent.
For Taipei, the next test is simple. Buyers need to show up for TSMC and the other heavyweights at these lower levels, and US tech shares need to steady when New York opens. Until then, every new earnings report from a big AI spender will be read in Asia as a cash flow test, not just a sales story.