Key Points
- Alphabet loses nearly $500 billion in market value after shares plunge 12.6 per cent
- Asian technology shares tumble, while broader markets show mixed performances
- US Treasury yields fall to their lowest level in October as investors seek safety
ISLAMABAD: Global financial markets turned cautious on Friday as tech and AI-related shares tumbled across Asia and bonds rallied, reflecting growing investor concerns over returns.
Traders were wary of fears that massive investments in artificial intelligence (AI) may not generate returns sufficient to justify their mounting costs.
The sell-off followed a sharp decline on Wall Street, wherein shares of Alphabet, Google’s parent company, plunged 12.6 per cent on Thursday. It wiped out almost $500 billion in market value.
The decline, the steepest in more than 20 years, followed weaker-than-expected revenue growth and concerns about the company’s escalating AI expenditure.
Pressure intensified after Intel shares fell 23 per cent in after-hours trading over a disappointing revenue outlook. Amazon fell nearly 7 per cent as investors reacted to its rising spending on data centres and AI infrastructure.
The developments pushed Nasdaq 100 futures down 1.4 per cent and triggered fresh selling in Asian semiconductor and technology stocks.
South Korea’s Kospi fell nearly 4 per cent on Friday, while Japan’s Nikkei 225 declined 2.3 per cent. Technology companies, including major chipmakers Samsung Electronics and SK Hynix, came under pressure.
However, the overall Asian market picture was mixed. Hong Kong’s Hang Seng gained 1.7 per cent, Australia’s S&P/ASX 200 advanced 0.2 per cent, while China’s Shanghai Composite slipped 0.4 per cent.
On Wall Street, the S&P 500 fell 0.3 per cent to 7,720.39, its first decline in four sessions. The Nasdaq Composite lost 1.4 per cent, while the Dow Jones Industrial Average declined 0.3 per cent to 52,342.56.
Despite losses in major indices, most S&P 500 companies advanced, suggesting that investor concerns were concentrated in technology and communication services rather than affecting the entire market.
Global bond rally gathers momentum
The retreat from technology shares strengthened demand for government debt, sending US Treasury yields lower as investors sought relatively safer investments.
The benchmark 10-year US Treasury yield fell to around 4.9 per cent in Asian trading, extending its October decline to approximately 37 basis points. This represented its largest monthly fall since December 2023.
The two-year Treasury yield also declined to around 4.57 per cent. Bond prices move inversely to yields, meaning falling yields indicate rising bond prices.
The rally was supported by the Federal Reserve’s decision on Wednesday to leave interest rates unchanged, without providing a firm indication of when further increases might become necessary.
The Bank of Japan also kept its benchmark interest rate unchanged at 1.25 per cent on Friday, as expected. The Japanese yen and Swiss franc, both regarded as safe-haven currencies, strengthened as investors reduced exposure to riskier assets.
AI investment faces tougher scrutiny
At the centre of the market turmoil is the enormous financial commitment technology companies are making to artificial intelligence.
Alphabet, Amazon, Meta, Microsoft and Oracle are investing heavily in data centres, advanced processors and computing infrastructure to secure their positions in the rapidly expanding AI industry.
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However, investors are increasingly concerned about the gap between capital expenditure and the revenues these investments can generate.
Amazon’s growing expenditure has also raised concerns about cash generation, while Alphabet’s latest results have intensified questions about whether its AI investments can deliver adequate shareholder returns.
Microsoft, meanwhile, attracted strong demand for a $25 billion bond offering, highlighting the growing role of debt financing in the technology industry’s infrastructure expansion.
The latest market reaction suggests investors are becoming more selective about the AI boom, focusing on profitability, cash flows and companies’ ability to convert heavy spending into sustainable earnings.
The question facing markets is no longer simply how quickly artificial intelligence will transform business, but whether the enormous investments underpinning that transformation will generate returns commensurate with their cost.
