Chip Stocks Slide Despite TSMC’s Strong AI Outlook
Global equities extended their losses as a sharp sell-off in semiconductor stocks intensified concerns over the sustainability of the AI rally. MSCI’s Asia Pacific Index fell 2.8%, heading towards its lowest close since July, while Nasdaq 100 futures dropped 0.9% and European equity futures pointed lower. South Korea’s Kospi plunged as much as 8%, triggering a brief trading halt, with Samsung and SK Hynix both losing more than 10% as investors questioned whether massive AI investments will generate sufficient returns.
Despite the market turmoil, Taiwan Semiconductor Manufacturing Company (TSMC) delivered a strong outlook, raising its 2026 revenue growth forecast to around 44% in US dollar terms, from slightly above 40%. The company said demand continues to significantly exceed supply, with no signs of slowing in leading-edge technologies and growing demand for agentic AI CPUs. TSMC also plans to add a new N3 fabrication facility in Tainan, with A14 technology scheduled to enter volume production in 2028. However, tool-price inflation and backend capacity shortages remain challenges, while the company is taking a prudent approach to business planning for 2027.
The technology sell-off triggered a flight to safety, lifting US Treasuries. The 10-year yield fell 8 basis points to 5.11%, while the two-year yield declined 7 basis points to 4.72%. The Dollar weakened as investors reassessed the outlook for Federal Reserve policy following stronger-than-expected US inflation. Chicago Fed President Austan Goolsbee warned that broad-based price pressures were concerning, adding that AI infrastructure investment could be contributing to an overheating economy.
In currency markets, Japan’s Finance Minister Satsuki Katayama warned that authorities remained prepared to intervene if necessary after the Yen weakened against the Dollar. Meanwhile, softer Australian employment data reduced expectations for further Reserve Bank rate increases, while New Zealand’s next policy decision remains uncertain. In Europe, ECB Governing Council member Primož Dolenc suggested tighter financial conditions could limit the need for additional monetary policy action.
Oil prices held onto recent gains as renewed attacks involving Russia and the Middle East threatened energy supplies that had only recently recovered towards pre-conflict levels. Persistent energy costs continue to complicate the inflation outlook and increase the risk of further monetary tightening.
Attention now turns to Federal Reserve Chair Warsh’s remarks in Bangkok on Friday, with investors assessing whether persistent inflation and heavy AI investment will sustain pressure on interest rates and equity valuations.
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