Asia Chip Stocks Crash After Wall Street Wipes $3 Trillion on Midterm AI Regulation Fears

The AI trade broke on Friday. Asian chipmakers and SoftBank went into free fall at the open, a day after Wall Street erased roughly $3 trillion from S&P 500 companies on fears that a Democratic Congress will put the brakes on the AI buildout.

Japan's Nikkei slumped 7% right after the bell, while benchmarks in South Korea and Taiwan dropped more than 8%. Overnight, the Nasdaq had fallen 5.5%, its worst day since the April 2025 tariff selloff.

From scare to capitulation

On Wednesday, the first reaction to the midterms was a sharp but brief wobble. Asia's chip stocks plunged right after Democrats swept Congress, then dip buyers clawed much of it back. Friday's move was different. Once Wall Street priced a harder brake on AI spending, the scare turned into capitulation.

Investors fear tighter data center rules from Democrats, on top of local opposition that was already rising. They are also asking a question that has dogged the trade for months: whether hyperscalers will ever earn a decent return on their enormous AI infrastructure bills.

The S&P 500 lost about 4.4% on Thursday and the Dow more than 3%. The Philadelphia Semiconductor Index sank about 12.2%. The Nasdaq closed more than 10% below its recent peak, putting it in correction territory.

The AI names take the hit

In Tokyo, the Nikkei fell below 60,000 for the first time since May, and the Topix lost more than 6%. SoftBank Group dropped about 11%, and the cost of insuring its debt against default jumped to the highest level in four years. Memory maker Kioxia plunged 14%, and chip tester Advantest fell more than 12%.

Seoul was hit harder still. The market dived 8.5% at one point, triggering a 20-minute circuit breaker. SK Hynix fell nearly 12% and Samsung Electronics nearly 10%. The Kospi more than doubled between December and its mid-June record, and it has since lost almost half its value.

In Taiwan, TSMC fell as much as 8.5% and Foxconn about 9%. Chinese AI shares were not spared either, with the STAR Market and ChiNext AI indexes both down more than 4%. Some buyers stepped back in later in the session, and by midday the Nikkei had pared its loss to about 5.7%.

The pain spread to the companies renting out AI capacity. US neocloud CoreWeave slumped 10%, and its five-year credit default swaps widened to a record.

Money runs for cover

Bonds rallied. The US 10-year Treasury yield eased to about 4.838%, near its lowest since early September, while the 10-year Japanese government bond yield dropped as much as 9 basis points to 1.795%. The dollar slipped against the yen and the Swiss franc.

Saxo strategist Charu Chanana described the move as panic selling, made more violent by crowded positioning, and warned it could feed on itself if leverage forces more liquidations. Dong Baozhen of Lingtong Shengtai put it more bluntly: AI stock prices had been built on rosy illusions, and the US market that held up the global AI rally had snapped.

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