Asian stocks mostly fall as AI valuation worries hit technology shares

Most Asian stock markets fell on Thursday as technology shares came under renewed pressure from concern that the rally linked to artificial intelligence had pushed valuations too high. Seoul was again the hardest hit major market in the region, with the Kospi closing down 6.4 percent at 6,820.60. Chipmaker SK hynix fell more than 11 percent.

The selling came even though Wall Street had risen for a second day after more US data showed easing inflation, which pushed back market expectations for a Federal Reserve interest rate increase until later in the year.

Investors have been questioning whether heavy spending on AI can justify the high valuations reached by some technology companies. Dutch chip equipment maker ASML reported higher second-quarter net profit and raised its full-year sales forecast. TSMC said its second-quarter net profit rose more than 77 percent to a record high because of strong demand for AI hardware, and said it would invest an additional $100 billion in the US state of Arizona.

Analysts said investors remained confident about AI demand but that the trade had become crowded. Stephen Innes of SPI Asset Management said the Philadelphia Semiconductor Index had risen about 83 percent this year and that valuations had stretched. He said strong earnings and demand could keep a trade going, but could not stop a correction if investors were already heavily exposed. He said the question was not whether AI infrastructure demand existed, but how much of it had already been priced into shares.

Elsewhere in Asia, Tokyo also fell heavily. Shanghai, Singapore and Wellington declined, while Taipei and Sydney were slightly lower. Hong Kong rose 1.3 percent to 25,008.60 as Chinese chip companies advanced. Manila, Mumbai, Bangkok and Jakarta also gained. London, Frankfurt and Paris fell in early European trading.

In New York, all three main indexes had closed higher, helped by gains in large technology companies including Apple, Amazon and Meta. US producer prices fell 0.3 percent in June from the previous month, helped by lower energy prices after the United States and Iran reached a truce to reopen the Strait of Hormuz and allow crude shipments to pass through again. Consumer price data released earlier in the week also rose by less than expected.

The inflation data eased market concerns that the Federal Reserve would raise borrowing costs this month. Analysts warned, however, that renewed US-Iran hostilities, after about a week of exchanged strikes, could reverse that effect. Crude prices were mixed as traders remained cautious and traffic through the Strait of Hormuz, which the report said carries one fifth of world oil and liquefied natural gas, thinned.

In currency trading, the South Korean won strengthened slightly against the dollar after the country's central bank raised interest rates for the first time since 2023, citing stubborn inflation and an economy supported by strong chip exports. Sterling extended gains after rising more than one percent against the dollar on Wednesday, following reports that Home Secretary Shabana Mahmood was a frontrunner to become Britain's next finance minister.

Around 0810 GMT, West Texas Intermediate crude was up 0.1 percent at $79.70 a barrel, while Brent crude was down 0.2 percent at $84.77. Tokyo's Nikkei 225 closed down 2.8 percent at 66,835.54, Seoul's Kospi closed down 6.4 percent at 6,820.60, Hong Kong's Hang Seng closed up 1.3 percent at 25,008.60, and Shanghai's Composite closed down 1.9 percent at 3,882.41. London's FTSE 100 was down 0.5 percent at 10,463.34. The pound traded at $1.3535, the euro at $1.1473 and the dollar at 162.04 yen.