AI Spending Worries Drag Japan’s Nikkei Lower -

Japan’s Nikkei share average fell more than 2% on Friday as investor sentiment weakened following a sharp decline in Alphabet shares, reigniting concerns over the sustainability of heavy spending on artificial intelligence.

The Nikkei dropped 2.69% to 64,634.04 by 0112 GMT, while the broader Topix index slipped 1.28% to 4,002.09. The benchmark index has lost more than 7% this month and entered correction territory last week, tracking weakness in global technology markets, including South Korea’s KOSPI and the U.S. Philadelphia Semiconductor Index.

Market pressure intensified after Google parent Alphabet fell 7% overnight, following its announcement of increased AI investment plans and weaker cash flow. The decline dragged Wall Street lower, with the Nasdaq ending the session down more than 2%.

“Concerns have resurfaced over whether the massive investments being made in AI infrastructure are sustainable,” said Kazuaki Shimada, chief strategist at IwaiCosmo Securities. He noted that the Nikkei’s recent movements have largely been driven by overseas developments rather than domestic factors. However, he added that the outlook could improve if Japanese companies deliver strong earnings, with the reporting season beginning on Friday.

Technology and semiconductor-related stocks led the declines. Advantest dropped 6.33%, Tokyo Electron lost 5.43%, SoftBank Group fell 7.42%, and memory chip maker Kioxia declined 4.4%.

In contrast, domestically focused stocks offered some support to the market. Central Japan Railway and East Japan Railway gained 1.17% and 0.6%, respectively, while shipping companies Kawasaki Kisen and Mitsui OSK Lines rose 0.61% and 0.88%. Beverage maker Otsuka Holdings, known for Pocari Sweat, was the Nikkei’s top performer, climbing 1.6%. – ERMD