Nikkei Sinks More Than 2% as Tokyo Electron Leads Chip Rout and AI Spending Doubts Rattle Japanese Investors

Japanese stocks fell sharply on Thursday as a sell-off in semiconductor shares intensified through the session, with investors increasingly worried that the massive spending on artificial intelligence that has powered markets this year may slow in 2027.

The Nikkei 225 closed down 1,713.40 points, or 2.65%, at 62,907.84, erasing the previous day's gains and more.

The index opened lower and losses deepened as the day wore on. In the morning session, the Nikkei was down less than 1%, but selling accelerated in the afternoon as chip-related stocks extended their declines and weakness spread across Asian markets.

Chip stocks lead the decline

Semiconductor-related shares, which carry heavy weight in the Nikkei, led the losses.

Tokyo Electron, one of the world's biggest makers of chip manufacturing equipment, fell more than 4% in morning trade, single-handedly shaving more than 200 points off the index at that stage. Screen Holdings dropped 6%, and Lasertec fell nearly 3%.

SoftBank Group, a major investor in AI ventures, fell about 3%. Data center cable maker Fujikura also declined about 3%, while memory chipmaker Kioxia and electronic components maker Murata Manufacturing also lost ground.

Concern over 2027 spending

The selling reflected growing unease about whether the wave of AI infrastructure investment by global technology giants will continue next year.

Wataru Akiyama, an equities strategist at Nomura Securities, said investors are looking ahead to 2027 and questioning whether AI capital expenditure will continue, adding that "there's quite a lot of caution among investors."

Concerns were also raised about demand from China. Kazuyoshi Saito, an analyst at Iwai Cosmo Securities, said Chinese buyers had rushed to purchase chipmaking equipment early because of fears of tighter regulations, suggesting demand may have been pulled forward.

"In China, there was a rush to procure manufacturing equipment ahead of schedule amid concerns over tighter regulations," Saito said.

That concern carries particular weight for Japanese equipment makers such as Tokyo Electron, which have relied heavily on Chinese customers in recent years.

Lam Research forecast weighs

Sentiment was also hurt by results from Lam Research, a U.S. chip equipment maker that competes with Tokyo Electron. Lam beat analysts' expectations for the latest quarter, but its shares fell sharply in after-hours trading on Wednesday after its outlook disappointed investors.

The decline came even though Wall Street had ended Wednesday's session higher, with the Nasdaq outperforming as major technology companies began reporting earnings. Futures tied to the Nasdaq 100 slipped in Asian trading Thursday, signaling caution ahead of the U.S. open.

A few winners

Not every stock fell. Cybersecurity company Trend Micro jumped more than 6% after reports of critical vulnerabilities in widely used web software prompted several European governments to take websites offline.

IT services firm SHIFT rose about 9% in the morning session, making it the Nikkei's top percentage gainer at that point, while consulting firm BayCurrent and Sony also posted gains. Service-sector stocks were among the best performers during the morning.

Global headwinds

Rising energy prices added to the pressure. Brent crude climbed above $110 a barrel after deadly attacks in Saudi Arabia, while concerns about shipping through the Strait of Hormuz persisted. Japan relies heavily on imported energy, making it vulnerable to oil price spikes.

Higher oil prices have also fueled expectations that the U.S. Federal Reserve will keep interest rates elevated, a scenario that weighs on growth-oriented technology stocks worldwide.

Losses were widespread across Asia on Thursday. South Korea's KOSPI fell more than 3.5%, led by chipmakers Samsung Electronics and SK Hynix, while Hong Kong and mainland Chinese markets also declined.

Lending data

Separately, the Bank of Japan's quarterly loan survey showed corporate demand for loans improved, led by smaller companies. The data offered a modest sign of underlying economic resilience, though it did little to offset the sell-off in technology shares.

The Nikkei has climbed to record levels this year, driven largely by enthusiasm for AI-related stocks and corporate governance reforms that have encouraged companies to return more cash to shareholders. That rally has left the market vulnerable to sharp pullbacks when investor sentiment toward technology shifts.

Investors will be watching upcoming earnings from major U.S. tech companies for signs that AI spending plans remain on track. Japanese chip-related companies are also set to report quarterly results in the coming weeks, which could offer more clarity on demand trends heading into 2027.

For now, Thursday's sell-off shows how sensitive Tokyo's market remains to any sign that the AI investment cycle may be losing momentum.