The factors behind the sharp decline in AI-related stocks include position adjustments ahead of the US midterm elections, concerns about AI regulation, the rise of Chinese memory manufacturers, concerns over the failure of US AI cloud start-ups, and issues highlighted in an IMF report. Japanese equities could regain momentum depending on corporate earnings and the election results.
The Nikkei Stock Average has been fluctuating sharply, centred on movements in AI-related stocks, after falling to around its mid-September level last year. Declines in AI-related stocks have been notable in both Japan and the US, although the index has at times recovered to around ¥64,000, and nervous market conditions have continued.
Ikeda Yunosuke (池田 雄之輔) of Nomura Securities views the adjustment in AI stocks as a correction following their previous rise, while identifying 5 factors that contributed to the latest decline. These include position adjustments ahead of the US midterm elections, concerns about AI regulation, technological advances by Chinese memory manufacturers, concerns over the failure of US AI cloud start-ups, and the IMF's observations regarding vulnerabilities in the AI sector.
1) Position adjustments ahead of the US midterm elections have historically tended to lead to increased buying after the election and a shift towards rising stock prices. 2) Concerns about AI regulation are expected to intensify if the Democratic Party regains a majority, but this outcome has already been priced in to some extent. 3) Technological advances by Chinese memory manufacturers could pose a threat, but lower memory prices could also boost capital investment related to AI. 4) Concerns over the failure of US AI cloud start-ups are generally viewed as being limited to relatively small companies, with a limited impact on the market as a whole. 5) The prevailing view is that the IMF report does not single out AI as a new risk, meaning it is unlikely to be a major surprise.
Looking ahead, earnings from technology companies and the outcome of the US midterm elections will be major focal points. In the absence of surprises, corporate earnings growth in Japanese equities is expected to remain solid, and the main scenario for the Nikkei Stock Average remains ¥71,000 at the end of March 2027. The view is that Japanese equities could regain momentum depending on market developments before and after the election.