The gloom on Wall Street spread across Asia on Wednesday, with key indexes tumbling as a global tech sell-off deepened.
Asia is caught in Wall Street's storm as the global tech rout deepens.
The AI frenzy has cooled fast as sky-high valuations run into reality.
Traders are locking in profits and bracing for more chaos in tech and chip stocks.
The gloom on Wall Street spread across Asia on Wednesday, with key indexes tumbling as a global tech sell-off deepened.
In Japan, the benchmark Nikkei 225 Index slid as much as 4.7%, led by chip test provider Adventest, which plunged 11%.
In South Korea, the Kospi index dropped as much as 6.2% as chip giants Samsung Electronics and SK Hynix sank 8.2% and 9.5%, respectively. The declines erased much of the Kospi's 20% surge in October.
Shares of Taiwan Semiconductor Manufacturing Company tumbled 3%, and Hong Kong's Hang Seng Tech Index fell as much as 2.9%.
The downturn reflected a "gloomy and damp portrayal of risk," wrote Chris Weston, the head of research at Australian brokerage Pepperstone, in a Wednesday note.
AI hype cycle hits reality check
That sentiment marks a sharp contrast with the optimism that has fueled markets this year, as investors piled into artificial intelligence plays that sent valuations to new highs.
But concerns are mounting that some companies' valuations have outpaced their actual progress — and that they may struggle to deliver on lofty AI ambitions despite pouring billions into the technology.
Adding to the selling pressure was Michael Burry, the famed "Big Short" investor, whose hedge fund disclosed short bets against Palantir and Nvidia on Monday.
"Investors are sitting on huge stock market gains, and some might have taken profits today, especially in AI-related stocks, in response to Burry's filing news," wrote veteran analyst Ed Yardeni.
On Tuesday, shares of AI-powered data analytics firm Palantir tumbled 8% following its third-quarter earnings report and Burry's disclosure, despite solid results and upbeat guidance.
Other major tech names — including AMD, Oracle, and Nvidia — also dropped, dragging the tech-heavy Nasdaq 100 down 2.1%.
"There is fear of an AI correction, and if it comes, it will sweep the rest of the market with it due to the heavyweight of the leading names," wrote Louis Navellier, the founder and chief investment officer at asset manager Navellier and Associates.
He wrote that while this earnings season has featured companies consistently beating forecasts, investors are showing signs of resistance to high valuations. He also still recommends Nvidia and Palantir.
Despite the selloff, "we can't lose sight that it was only last week that the indexes were at all-time highs, and profit-taking is the normal course of action," Navellier wrote.
Palantir's stock remains up 152% year to date, while Nvidia — which closed 4% lower on Tuesday — is still up 48% over the same period.
Still, the selling may not be over.
"Simplistically, there aren't many reasons to buy here, and until we move closer to Nvidia's earnings on 19 November, the market lacks a short-term catalyst," wrote Pepperstone's Weston.
This article was written by Huileng Tan from Business Insider and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.