Stocks slump, bonds leap as AI giants' spending spooks investors

Global Stocks Slide as Spiraling AI Spending Drives Flight to Bonds

Market Reactions to AI Spending and Investor Sentiment

Tech Shares and Major Index Performance

SINGAPORE, Oct 30 (Reuters) - Tech shares slumped in Asia on Friday, while the yen rose and bonds surged toward their biggest monthly gain in nearly three years as investors scurried to safety against worries that huge and rising AI spending may not deliver sufficient returns.

Impact on Major Tech Companies

Shares in Google parent Alphabet fell 12.6% on Wall Street and slid a little further after hours, to wipe out a withering $500 billion in market value, as massive AI spending turned the company's cash flow negative.

An aftermarket plunge of 23% in Intel shares and a drop of 7% in Amazon stocks, as they too burn through cash, drove Nasdaq 100 futures down 1.4% and sent stocks of chipmakers around Asia into a tailspin.

Analyst Perspectives on AI Investment

"The market isn't necessarily questioning whether the AI buildout can be financed," said Pepperstone analyst Chris Weston. "It's increasingly questioning whether shareholders will earn an adequate return on the enormous capital being deployed."

Broader Market and Sector Impacts

Cryptocurrency and Related Stocks

Nerves were also frayed by a potentially record-breaking hack at Binance, the world's biggest cryptocurrency exchange, which drove down bitcoin, other cryptocurrency prices and stocks including rival exchange Coinbase.

Regional Stock Market Movements

South Korea's KOSPI slumped 5% for an October fall of more than 17%. Japan's Nikkei fell 3%.

The Bank of Japan left interest rates on hold, which was expected and did not trigger major currency or bond moves, but Nikkei futures slipped after the BOJ announced plans to sharply accelerate exchange-traded fund sales next year.

In China, the blue chip CSI300 headed for its largest monthly fall in a decade, after nearly four months of AI stocks tanking on fears that a slowdown in demand for chips and other data centre equipment could crush revenues.

Bond Markets and Currency Movements

US Federal Reserve and Treasury Yields

Investors' rush into bonds was further spurred by the Federal Reserve's Wednesday decision to keep US interest rates on hold, with no firm projection of when it might hike next.

Benchmark 10-year US Treasury yields fell by more than 7 basis points in Tokyo trade on Friday to 4.91% for a fall of some 37 bps through October — the largest one-month drop since December 2023.

Two-year yields dropped by more than 8 bps to 4.57% and Fed funds futures rallied as investors dialled back some expectations for US rate hikes. Yields fall when bond prices rise.

Currency Market Response

The risk-averse mood strengthened haven currencies such as the yen and Swiss franc, with the yen up about 0.3% at 157.20 per dollar and the franc at 0.8213 to the dollar and not far from a one-month high.

The euro inched up 0.1% to $1.1194.

Reporting Credits

(Reporting by Tom Westbrook; Editing by Clarence Fernandez and Tom Hogue)