Stocks Drop in Volatile Week on AI Valuation Woes: Markets Wrap

(Bloomberg) — Asian equities fell at the end of a volatile week marked by conflicting views, as investors balanced optimism over technological advances with concerns over stretched artificial intelligence valuations.

The MSCI Asia Pacific Index dropped 1.1%, putting the gauge on track for its worst week since early August. SoftBank Group Corp. shares led declines in Japanese chip-related stocks. Earlier, US equity benchmarks dropped for the second time in three sessions with AI-related firms such as Nvidia Corp. tumbling, while the VIX volatility gauge spiked. The MSCI All Country World Index is on track for its first weekly decline in four.

The sentiment is set to carry over to Europe with contracts indicating a weaker open for equities. US stock-index futures edged up. Tesla Inc. advanced 1.6% in extended trading after its shareholders approved a $1 trillion compensation package for Chief Executive Officer Elon Musk.

Investors who fueled the rally on expectations of Federal Reserve interest-rate cuts and AI-driven growth are now questioning whether the massive capital spending will deliver returns. Wall Street chief executives have also struck a more cautious tone recently, as the market’s gains since April’s slump increasingly rely on a narrowing group of stocks.

“If you look at the AI space, it’s a lot of froth,” said Mark Mobius, a veteran emerging markets investor. “We expect there will be a correction in companies that are emphasizing AI and spending trillions of dollars. That doesn’t mean AI is going to disappear, but current spending is excessive.”

The pattern of selloffs followed by dip buying emerged as earnings season wound down and investors grew more reliant on private data amid a lack of official economic reports during the ongoing US government shutdown.

Investors have also been hit by conflicting views about the possibility of further rate cuts. While Thursday’s data release from Challenger, Gray & Christmas Inc., showed companies announced 153,074 job cuts last month, a slew of comments from Fed officials about inflation left traders wondering whether a December rate reduction will materialize.

Cleveland Fed President Beth Hammack said inflation is a bigger risk than job weakness. Her Chicago counterpart Austan Goolsbee told CNBC that a lack of inflation data during the shutdown makes him uneasy about rate cuts.

Governor Michael Barr said officials still have work to do on inflation while ensuring the labor market is solid. St. Louis Fed President Alberto Musalem said the central bank must keep downward pressure on inflation, cautioning that interest rates are approaching the level that would no longer provide that pressure.

Last week, Chair Jerome Powell warned that a rate cut in December isn’t a foregone conclusion. Investors are still pricing about a 70% chance of a rate reduction.

What Bloomberg strategists say…

There’s also the clear and growing danger that the longest American government shutdown on record will do significant damage to the world’s largest economy. That’s an issue that’s come sharply into view with the Trump government’s order for airlines to reduce capacity, set to spark substantial disruptions for passengers on Friday.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.

Treasuries steadied during Asian trading after 10-year yields had their biggest drop in a month in the previous session on rate-cut bets.

Elsewhere, a Bloomberg gauge of the dollar edged up 0.1% after sliding the most since mid-October. In commodities, oil inched higher Friday but was set for a second weekly drop, as supply increases around the world heighten concerns about the size of a forming glut. Gold edged up, hovering around the $4,000-an-ounce level.

Meanwhile, China’s exports unexpectedly contracted in October during a period of renewed tensions with the US, dealing a blow to an economy already at risk of a slowdown in the final months of the year.

Back to AI, the sudden focus on the financing needs of OpenAI — the maker of ChatGPT — and other companies in the industry came after remarks from Wall Street executives about frothy tech valuations.

Their warning fueled jitters in the market earlier in the week, leading to a 2.1% drop in the tech-heavy Nasdaq 100 Index on Tuesday. After recouping some of that loss on Wednesday, the index slid another 1.9% on Thursday. It’s now down almost 4% from its last record on Oct. 29, though still up nearly 20% so far this year.

“The selloff in Asian tech is more a reflection of sentiment than substance,” said Billy Leung, investment strategist at Global X Management. “After several weeks of strong earnings and upbeat guidance, investors have turned cautious amid profit-taking and renewed policy noise.”

Corporate Highlights:

Novo Nordisk A/S has again increased its offer for Metsera Inc. as its takeover battle with Pfizer Inc. for the obesity startup escalates. Airbnb Inc. issued a better-than-expected outlook for the holiday quarter, citing strong demand as US travelers used its recently launched “reserve now, pay later” feature to book trips in advance. Qantas Airways Ltd. shares fell after the airline scaled back planned capacity growth after slower-than-expected corporate demand, in one of the first signs of softening appetite for travel in Australia since the pandemic. Macquarie Group Ltd. shares tumbled after profit missed expectations as tepid activity at its key commodities and global markets division overshadowed a rebound in investment banking. Recruit Holdings Co. gained the most since its 2014 listing, after it reported stronger-than-expected earnings and raised its forecast on robust growth in human resources technology business. The White House won’t allow Nvidia Corp. to sell its latest scaled-down AI chips to China, The Information reported. Singapore Telecommunications Ltd. shares touched their highest level since 1993 on investor optimism for a potential further push by the company into the high-growth market for data centers. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.1% as of 2:13 p.m. Tokyo time Japan’s Topix fell 0.9% Australia’s S&P/ASX 200 fell 0.7% Hong Kong’s Hang Seng fell 0.9% The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1537 The Japanese yen was little changed at 153.20 per dollar The offshore yuan was little changed at 7.1244 per dollar Cryptocurrencies

Bitcoin rose 1.2% to $102,301.86 Ether rose 1% to $3,356.87 Bonds

The yield on 10-year Treasuries advanced two basis points to 4.10% Japan’s 10-year yield was unchanged at 1.680% Australia’s 10-year yield declined one basis point to 4.35% Commodities

West Texas Intermediate crude rose 0.5% to $59.71 a barrel Spot gold rose 0.5% to $3,998.33 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi, Carmeli Argana and Toby Alder.

©2025 Bloomberg L.P.