AI stocks fall due to valuation concerns, Softbank shares drop 10%

Shares of Japan’s SoftBank Group Corp. closed 10% lower on Wednesday as AI companies widened their losses as investors wary of overvaluation in the market’s busiest trade.

SoftBank, which had built a broad portfolio of AI-related investments across infrastructure, chip and application companies, lost about $23 billion in market capitalization. It was the group’s worst day since April, when its shares plunged more than 12%, according to LSEG data.

SoftBank owns a controlling stake in UK-based Arm Holdings, whose chip designs power mobile and AI processors, and acquired Ampere Computing this year to boost its AI data center capabilities. NASDAQ-listed Arm Holdings’ stock price fell 4.71% overnight.

The group has backed leading AI model developers such as OpenAI, as well as application-level startups such as OpusClip, a generative AI video editing platform, and Tempus AI, which applies machine learning to precision medicine.

Other Japanese tech stocks also fall: Semiconductor inspection equipment makers Advantest It fell more than 5%, with chipmaker Renesas Electronics down 4.27%. Tokyo ElectronThe chip manufacturing equipment maker fell 4.08%.

South Korean memory chip giants Samsung Electronics and SK Hynix fell 4.1% and 1.19%, respectively. This year’s sharp rise in semiconductor manufacturers SK Hynix and Samsung Electronics pushed South Korea’s Kospi index to a record high.

Taiwan’s TSMCthe world’s largest contract semiconductor maker, fell 2.99%. alibaba Although it decreased by more than 3%, tencent Cut your losses and trade flat.

The decline came after U.S. software company Palantir fell about 8% overnight despite beating expectations for the third quarter as soaring valuations across the AI ​​sector hit investor sentiment. The AI-driven rally pushed the S&P 500’s forward P/E ratio to more than 23 times, its highest level since 2000, according to FactSet.

The excitement surrounding AI has raised concerns that the market is in the midst of a tech bubble.

“There is a risk of an AI correction, and if it does occur, it will dominate the rest of the market due to the heavy weighting of leading stocks,” market veteran Louis Navellier said in a note.

Some analysts say AI companies’ valuations increasingly resemble the dot-com boom of the late 1990s, with stock prices soaring far above reliable earnings expectations.

Jared Bernstein, who chaired President Joe Biden’s Council of Economic Advisers, said the share of AI investment in the economy is nearly a third higher than it was during the internet bubble, adding that the gap between revenue potential and spending “certainly looks buoyant.”

Michael Burry, famous for predicting the 2008 financial crisis, also caused controversy with his bets on AI darlings Palantir and Nvidia. Bally’s Scion Asset Management disclosed in a recent filing that it has significant short positions in these companies at the forefront of AI and chip technology.

In addition to Palantir, other U.S. tech giants also fell overnight. Oracle fell 4%, chipmaker AMD fell nearly 4%, and Nvidia and Amazon also fell.

“My view is that (the decline) is short-lived. I don’t think this is the beginning of a more structural decline,” said Dan Ives, managing director and senior equity research analyst at Wedbush. “I think this is just a very nervous, kind of white joint, and the decline that we saw, along with the decline in cryptocurrencies and other currencies, was just a massive risk-off.”