By Megan Cheah and Sherry Qin

Asian technology stocks were hammered, led by shares in Japan and Taiwan, as investors grow increasingly unsettled about massive spending on artificial intelligence.

AI-related stocks have swung wildly in recent weeks amid worries that their valuations are too far stretched after a historic rally in the first half of the year.

"People are growing uncomfortable with the massive AI buildout, pointing to overcapacity risks," Swissquote senior analyst Ipek Ozkardeskaya said in a note.

Taiwan's benchmark Taiex index tumbled 6.5% on Friday, its largest daily percentage fall since April 2025. Chip giant TSMC plunged 7.3%, even though on Thursday it posted its fifth consecutive quarter of record earnings. Investors were likely spooked by TSMC's latest capital expenditure projections, including a plan to invest an additional $100 billion in the U.S.

Japan's Nikkei Stock Average declined 4.0% to end at 64141.12, pulling off its lows after dropping below 65000 for the first time since June 12. Tech stocks also led the losers in Japan with Tokyo Electron down 8.1% and Kioxia Holdings plunging 16%. South Korean markets were closed Friday due to a public holiday.

"Today's weakness has broadened into Japan and Taiwan, which matters because the AI trade is not a single-stock story. It is a global supply-chain trade," said Tickmill Group market strategy partner Patrick Munnelly in a note. "When investors start marking down the whole stack--memory, foundry, equipment and storage--the signal is more serious."

In Hong Kong, the Hang Seng Index fell 2.0% while the Nasdaq-like Hang Seng Tech Index gave up 4.4%.

The broad weakness tracked Wall Street's overnight losses, which saw Nvidia falling 2.4% and Intel shedding 5.8%.

However, major U.S. tech earnings in the next two weeks could potentially turn the souring mood around if they confirm durability in AI demand.

Bernstein analysts noted that AI demand sustainability has improved in the past three months, making the recent pullback an opportunity to build more on AI stocks.

Developments in the Middle East also came back into focus after the U.S. launched another wave of strikes against Iran. The U.S. struck Iranian bridges on Thursday, aiming to cut off supply routes to a port city and naval base in the Strait of Hormuz that Iran uses to attack ships and project power, a senior U.S. official said. Iran has responded by striking U.S. infrastructure in the region and assets of its Gulf allies.

These moves have fueled concerns that the conflict could broaden further, OCBC Group Research analysts said.

Oil prices rose on renewed concerns about supply disruptions. Front-month West Texas Intermediate crude futures climbed 0.7% to $79.53 a barrel, while front-month Brent gained 0.4% to $84.58 a barrel.

While oil prices have increased, they remain well below the peak recorded in late April, analysts at ANZ Research noted. "As long as prices stay below $90/bbl, risks to [Asia's] growth and inflation are manageable, in our view," they added.

Spot gold rose 0.7% but traded below the psychologically-important $4,000 an ounce. Softer-than-expected U.S. inflation data earlier this week eased bets of the Federal Reserve tightening and initially supported bullion, but that momentum has faded as bond yields recovered slightly, said Tony Sage of Critical Metals.

Still, continued central bank gold-buying should be able to limit risk of declines over the longer term, he added.

Write to Megan Cheah at megan.cheah@wsj.com

(END) Dow Jones Newswires

July 17, 2026 03:37 ET (07:37 GMT)

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