Asian markets experienced a downturn on Thursday (August 29) as a sell-off in tech stocks followed disappointing earnings from chip giant Nvidia, which heightened concerns about the future of artificial intelligence (AI) technology.
Despite Nvidia’s report surpassing expectations in several areas, it failed to buoy investor sentiment, which had been optimistic about potential US interest rate cuts starting next month. The anticipation surrounding Nvidia’s results was high, given its significant role in AI chip development.
Analysts had cautioned that even a forecast-beating performance might not satisfy the market’s appetite for extraordinary profits and revenues. Nvidia, now boasting a market capitalisation exceeding US$3 trillion, had seen its share price rise approximately 160 per cent year-to-date, contributing a third of the S&P 500 index’s gains for the year.
The company reported a more than doubling of revenue and profits for the fiscal second quarter, alongside a US$50 billion stock buyback announcement. However, the slower sales growth compared to previous quarters dampened enthusiasm.
Additionally, concerns arose over issues with Nvidia’s new Blackwell line of AI chips, the successor to the successful Hopper series. The company’s share price plummeted more than 8 per cent in after-hours trading, and all three major Wall Street indexes declined before the earnings release, which came after the market closed.
In Asia, the tech sector suffered significantly, with chip-makers particularly hard-hit. SK Hynix in Seoul fell over five per cent, and Samsung dropped more than three per cent. Taipei-listed TSMC saw a decline of more than 2 per cent, and Tokyo Electron fell by 1.8 per cent in Tokyo.
This decline in tech stocks contributed to broader market losses, with indices in Seoul, Shanghai, Sydney, Taipei, Manila, Bangkok, and Wellington all showing red. Tokyo experienced only a marginal drop, while Hong Kong, Singapore, Mumbai, and Jakarta saw slight increases. London remained flat at the open, with Paris and Frankfurt showing gains.
Independent analyst Stephen Innes remarked, “As a bellwether for the tech industry, Nvidia’s performance is closely watched for insights into the broader market and the US economy. A setback for such a leading company has the potential to impact the entire sector.”
Attention now shifts back to the US economy, with upcoming data potentially influencing the Federal Reserve’s decisions on interest rate cuts. Federal Reserve Chair Jerome Powell indicated that rate reductions would be necessary as the job market softens and inflation eases, though specifics on the expected September cut remain unclear. Key economic indicators this week, including GDP readings, jobless claims, and personal consumption expenditure, as well as the crucial non-farm payrolls report due next Friday, will provide further insights. A weaker-than-forecast performance could strengthen the case for a more significant rate cut.
Source: AFP
