The Japanese stock market, shaken by funding concerns surrounding American AI cloud company CoreWeave, is under scrutiny this week as corporate earnings reports are set to be released. On October 19, the Nikkei average fell by more than 1,400 points in early trading, dipping below the 64,000 mark for the first time in nearly a month. Analysts suggest that companies must demonstrate through their earnings that AI investments are translating into actual profits to attract investors back from bonds.
According to the Nihon Keizai Shimbun (Nikkei), the decline was led by semiconductor stocks. Major semiconductor companies, including Advantest and Tokyo Electron, saw significant drops, while SoftBank Group also faced losses. Conversely, defensive stocks in retail and land transportation attracted buying interest as investors sought to mitigate risk.
As a result, the Nikkei average closed at 65,324, down 3,706 points (5.4%) for the week, marking its first weekly decline in five weeks. Notably, on October 15, the index fell by over 3,000 points, recording the third-largest drop in history. Although it had recovered above the 70,000 mark on October 6, it failed to maintain that upward momentum.
On the last trading day of the previous week, October 16, concerns in overseas markets persisted. The Nasdaq Composite in the U.S. fell by 2.1%, while the Philadelphia Semiconductor Index (SOX), which comprises major semiconductor stocks, dropped by 3.8%.
The source of the shock is CoreWeave, which provides computational resources to AI companies through data centers. CoreWeave's net debt exceeds seven times its equity. Emerging AI cloud firms are generally struggling to cover interest costs solely from their core business profits. As CoreWeave's corporate bond prices plummeted, fears about credit stability spread, raising questions about whether AI companies can continue large-scale investments and generate profits. This led to widespread selling of AI and semiconductor stocks in Japan, with CoreWeave's shares also falling by 12% on October 16.
Shigenori Yoshinori, a macro strategist at Fidelity Investments, told Nikkei, "Investors are beginning to recognize the limitations of funding for AI companies and the burdens placed on the bond market during the financing process as realistic concerns." There are also worries about returns on investment. A report from Bank of America (BofA) on October 16 noted that while the projected capital expenditures for five major U.S. tech companies have been raised by 80% for 2027, the upward revision for AI-related revenue forecasts has only been 20%.
However, some analysts believe that the funds moving into bonds have not completely exited the financial markets. Takatoshi Itoshima, a senior fellow at Pictet Japan, assessed, "Rather than funds leaving the market, they are shifting to bonds, which are relatively lower risk compared to stocks." Amid the sharp decline in semiconductor stocks, buying interest in bonds increased, causing the yield on U.S. 10-year Treasury bonds to drop from over 5.3% on October 14 to 5.0% on October 16. In Japan, a similar flight to safety pushed the yield on 10-year government bonds below 3%, recording 2.885% on October 16.
The upcoming earnings reports from U.S. and Japanese companies for the July to September period are seen as a potential catalyst for funds to return to stocks. In the U.S., Meta, which operates large data centers, is set to report on October 21, while Japanese semiconductor equipment manufacturer Disco will announce its earnings on October 22. Following these, more announcements from AI and semiconductor-related companies are expected.
Hiroto Iwahara, a market operations department manager at Kanpo Life Insurance, noted that the market is in the process of digesting the CoreWeave shock, suggesting that if major tech companies like Meta report strong earnings, it could alleviate some concerns.
However, some analysts caution that improved earnings may not lead to a rapid recovery in stock prices. Ryotaro Sawada, chief analyst at Tokai Tokyo Intelligence Lab, stated, "While good earnings are expected, investors' evaluation criteria are becoming stricter, particularly for AI and semiconductor stocks, making a V-shaped recovery unlikely." With monetary policy meetings scheduled next week in Japan, the U.S., and Europe, it is anticipated that investors may be hesitant to engage in active trading.
* This article has been translated by AI.
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