Global markets are entering a new phase of reassessing AI-driven gains, after technology stocks led a historic rally this year before beginning to lose momentum as geopolitical pressures in the Middle East intensified and concerns resurfaced over the sustainability of massive spending on AI infrastructure.
Investors are currently balancing two key factors: continued strong demand for chips and data centres on one hand, and rising valuations alongside the prospect of diminishing future returns on the vast investments being poured in by major technology companies on the other.
In the United States, the S&P 500 and Nasdaq moved modestly higher, supported by a rebound in chipmaker stocks, while markets remained under pressure from geopolitical developments following an escalation in tensions between the United States and Iran.
The moves came after the US military announced new strikes on Iran aimed at ensuring continued navigation through the Strait of Hormuz, reigniting concerns about global energy supplies and oil prices.
Semiconductor stocks had been the primary driver of Wall Street's gains in recent months, with the sector contributing roughly half the market-capitalisation gains in the S&P 500 this year, buoyed by the AI boom and strong demand for advanced chips.
But the rally has begun to face a real test, as chipmaker shares retreated in recent weeks amid profit-taking and investor reassessment of whether massive AI spending can deliver returns commensurate with lofty expectations.
Micron Technology's stock has fallen more than 20% since hitting its high in June, while the Philadelphia Semiconductor Index has declined roughly 15% from its recent peak, despite the sector still posting strong gains since the start of the year.
In the broader technology sector, shares of several major companies declined, with IBM, Microsoft, and Meta all falling as investors revisited the outlook for AI infrastructure spending.
Markets are watching upcoming earnings results from major companies closely, viewing them as a key indicator of whether AI can transition from a massive investment wave into an actual driver of profit growth.
In Europe, the Stoxx 600 rose 0.4%, supported by a rebound in technology shares, which climbed 1.6% to become one of the best-performing sectors.
Chipmaker stocks posted strong gains, with Siltronic rising 7.4%, Soitec advancing 5.5%, and ASML gaining 2.5%.
The improvement came after concerns about technology valuations eased temporarily, alongside expectations that potential Chinese demand for AI chips could support the global supply chain.
European markets remained cautious, however, due to the impact of energy prices and geopolitical tensions, particularly given that any prolonged disruption to the Strait of Hormuz could push up energy costs and add to inflationary pressures.
In corporate moves, AstraZeneca fell 8% after a new drug failed to meet the targets of an advanced clinical trial.
Japan's market bucked the regional trend, with the Nikkei rising 1.38% to close at 67,743.85 points, supported by gains in AI-linked and semiconductor stocks.
Kioxia, the memory chip manufacturer, jumped 8.3%, Advantest, which makes chip-testing equipment, rose 5.9%, and Tokyo Electron gained 5.5%.
The performance came after investor appetite for the sector improved following reports of major chip supply agreements, including a deal between Broadcom and Apple valued at more than $30 billion, alongside reports that Chinese AI companies could gain limited access to advanced Nvidia chips.
However, rising oil prices renewed pressure on transport and aviation sectors, while also pushing yields on 10-year Japanese government bonds to their highest levels in three decades on inflation concerns.
Across Asia, market movements became increasingly divergent, with technology and semiconductor stocks coming under pressure as investors began rotating away from shares that had posted record gains during the AI boom.
South Korea's Kospi fell more than 5%, bringing its decline from last month's peak to roughly 20%, as chipmaker stocks that had led previous gains retreated.
Chinese stocks outperformed, with Alibaba jumping roughly 12% in Hong Kong, buoyed by a broader rally in Chinese equities as expectations for the domestic technology sector improved.
The MSCI Asia-Pacific index also fell 0.5%, as investors continued to monitor the fallout from Middle East tensions and their impact on energy prices.
In asset markets, spot gold rose 0.5% to around $4,125 per ounce, benefiting from safe-haven demand as uncertainty increased.
The US dollar was little changed, while Bitcoin fell 1.4% to around $62,700. The yield on 10-year US Treasury bonds held near 4.54%.
Investor attention in the coming period will be focused on earnings results from major technology companies, which will determine whether the AI boom still has the capacity to drive markets to new highs or whether the next phase will bring widespread repricing of equities after the record-breaking rally.