Technology stocks recovered some of their sharp losses at the beginning of Monday's trading, with chip stocks and companies linked to the artificial intelligence boom in Asian markets recovering, after a wave of selling sparked by fears of tightening regulatory restrictions in the United States. But investors were still monitoring the repercussions of an investigation launched by Nvidia's board of directors regarding the possibility of targeting its CEO, Jensen Huang, in a foreign espionage operation.
Shares of technology companies were under pressure in the wake of the US midterm elections that took place last Tuesday, which resulted in the Democrats winning a majority of both houses of Congress, in a setback for President Donald Trump and the Republican Party.
The results showed voters' dissatisfaction with the US war on Iran and the customs duties that contributed to rising prices, in addition to growing objection to the significant expansion in the establishment of data centers across the United States over the past years.
These developments have raised speculation that the new Congress will seek to limit the expansion of technology companies in building data centers, which could threaten thousands of jobs. These concerns come at a time when investors are increasingly concerned about how long it will take for huge investments, amounting to hundreds of billions of dollars in the artificial intelligence sector, to turn into actual profits.
After a sharp wave of losses on Wall Street on Thursday, the American markets witnessed a degree of stability at the end of last week, and the Asian markets followed the same approach at the beginning of Monday’s trading, after the significant declines recorded on Friday.
Tokyo, Seoul and Taipei led the gains, benefiting from the heavy weight of AI-related technology companies in their markets. The Japanese Nikkei index rose by more than 3 percent, supported by gains in the shares of “Kioxia”, “Tokyo Electron” and “Advantest”, while the shares of “SK Hynix” and “Samsung Electronics” rose by about 3 percent each, pushing the South Korean “KOSPI” index to rise.
In Taiwan, the shares of TSMC Semiconductor Manufacturing Company jumped by about 6 percent, contributing to pushing the TAEX index to rise by 5 percent. Hong Kong and Shanghai also recorded good gains, while Sydney, Wellington and Manila declined slightly.
Sally Auld, of National Australia Bank, said investors will be watching the performance of markets during the week to determine whether the recent gains reflect short-covering and buying opportunities after declines, or the beginning of a more sustainable recovery.
She added that concerns related to the regulation of artificial intelligence, capital spending expectations, and free cash flows were among the main factors behind investors reducing their exposure to risks in recent weeks, and it is unlikely that these issues will become clear conclusively in the near term. But she pointed out that the valuations of many technology stocks have become less high after the wave of decline.
The Nvidia investigation adds new pressures
In another development that increased uncertainty in the markets, it was reported that Nvidia's board of directors began an investigation into the possibility that its CEO, Jensen Huang, was targeted in a foreign espionage scheme, following reports of a personal relationship outside of marriage.
The New York Times reported last month that US intelligence officials concluded that a Chinese executive linked to the Singapore-based data center company Megaspeed was transferring information to Beijing.
According to the newspaper, executive officer Alice Huang, also known as Huang Li, developed a close relationship with the president of NVIDIA, stressing that she is not related to him, despite the similarity of the name. Jensen Huang is 63 years old and was born in Taiwan.
NVIDIA is one of the most prominent global companies producing chips used to train and operate artificial intelligence models. It is also one of the most valuable companies in the world, and was the first company to reach a market value of $5 trillion last year.
Huang is considered one of the most prominent figures influential in the artificial intelligence revolution, and he also has a close and informal relationship with Trump, and the newspaper said that the alleged personal relationship may have allowed access to some of the US President’s ideas regarding artificial intelligence.
Dan Ives, a technology analyst at the investment bank Yorkville Ives, said that the crisis may lead, at a minimum, to the opening of multiple investigations in Congress, and leave continued pressure on the company’s stock for several reasons.
He added that the case will increase the risks surrounding the stock, given the pivotal role played by Huang in NVIDIA's strategy and global business. It will also increase scrutiny of the company's sales of chips to China, which remains one of the most prominent arenas of competition between Washington and Beijing.
In a broader context, investors are awaiting the release of new data on inflation in the United States this week, after job numbers released on Friday showed that the economy added jobs in October much more than expected.
Price data is of particular importance to the Federal Reserve, which will rely on it to determine the course of monetary policy during its next meeting in December. Market estimates indicate a probability of about 80 percent to raise interest rates.
South Korean stocks rose in trading on Monday, supported by a recovery in the shares of electronic chip manufacturing companies after a sharp selling wave witnessed last week due to fears related to the artificial intelligence sector, while official reassurances regarding the continued supply of “NVIDIA” chips contracted with South Korea helped calm investors’ fears.
The standard “KOSPI” index rose by 1.57 percent, or 79.58 points, to 5,139.27 points by 01:46 GMT, after falling in the Friday session by 6 percent, recording its lowest close since March 31.
The rebound came with the recovery of shares of major semiconductor companies, as shares of “Samsung Electronics” rose by 2.9 percent, while shares of “SK Hynix” jumped by 4.7 percent, after sharp losses in previous sessions. The two companies have significant weight in the Korean market, and are major beneficiaries of the demand associated with the development of artificial intelligence applications and data centers.
In this context, a senior South Korean official said that the problems currently facing NVIDIA will not affect the contracted supplies of graphics processing units (GPU) that South Korea obtains from the American company.
Fears of tightening US regulatory restrictions on artificial intelligence sparked a widespread selling wave in global stock markets last week, and led to the loss of trillions of dollars in market value, before Wall Street regained some of its gains on Friday.
Han Ji-young, an analyst at Keum Securities, said that a repeat of a collapse wave similar to what happened last week seems unlikely, unless additional negative news appears in terms of macroeconomic data or the business results of artificial intelligence companies during the current week.
The improvement was not limited to stocks, as the Korean won rose by 0.18 percent to 1,360.6 against the dollar, compared to its previous close at 1,363 won.
In contrast, Korean government bond yields rose; The three-year bond yield rose by 2.4 basis points to 3.646 percent, while the benchmark ten-year bond yield increased by 2.5 basis points to 3.877 percent.
Despite the rise in the index, foreign investors recorded net stock sales worth 512.1 billion won (about 375.5 million dollars), indicating continued caution despite the recovery in technology stocks.
Asian stock markets began Monday's trading on a stable, upward trend, following a turbulent week that witnessed sharp declines in technology stocks, with mounting doubts about the profitability of investments in artificial intelligence and the demand for computing chips and the infrastructure needed for this technology. On the other hand, the dollar maintained its strength, supported by increasing expectations of raising US interest rates in December, after data showed the strength of the labor market.
The broader MSCI index of Asia-Pacific stocks, excluding Japan, rose by 0.8 percent, after falling 4.6 percent last week. Japan's Nikkei index rose 2.5 percent, while Korean stocks recorded limited gains.
In Taiwan, the benchmark index rose by about 2.5 percent, after last week recording its largest weekly loss in two decades, amid fears of a decline in expected returns on investments in artificial intelligence, and a slowdown in demand for related infrastructure. These fears turned into a sharp wave of selling following the Democrats’ victory in the US midterm elections.
US stock futures also recorded a slight rise, after Wall Street ended Friday trading with gains, in a rebound that followed widespread selling of shares of companies related to artificial intelligence, and contributed to allaying some investors’ fears.
Global markets have faced pressure over the past weeks, with investment momentum in artificial intelligence declining due to rising interest rates, before the results of the US midterm elections added new concerns related to the possibilities of tightening regulatory restrictions on the sector and data centers.
This week, investors' attention is turning to the business results of a number of technology companies, including CoreWave, Applied Materials, and Cisco Systems, to test the ability of these companies to achieve returns that keep pace with huge spending on building artificial intelligence infrastructure.
Internal investigations led by Nvidia into the relationship of its CEO, Jensen Huang, with a person suspected of spying for China, may also spark further fluctuations in the sector’s shares.
Kyle Rodda, senior financial markets analyst at Capital.com, said that the markets “are not yet out of the risk zone,” adding that the results of the midterm elections and the regulatory risks they resulted from, in addition to a business results season that fell below expectations for major technology companies, kept the markets’ momentum inclined to decline.
Oil is calming and the dollar is strengthening
In energy markets, Brent crude fell to $97.49 a barrel, after US President Donald Trump said on Sunday that the possibility of issuing orders to launch new attacks on Iran is very unlikely, as long as the talks aimed at ending the conflict are making progress.
On the other hand, US jobs data reinforced investors' bets on raising interest rates. The data showed that US employers added 165,000 jobs during October, more than double expectations, which supported the opinion that the Federal Reserve may be heading to increase interest rates in December.
Markets are awaiting the release of US consumer price index data on Tuesday, as high numbers may reinforce expectations of an interest rate hike next month. The odds of an interest rate increase of at least 25 basis points at the December meeting have risen to about 80 percent, according to the CME Group’s Fed Watch tool.
Statements from US Central Bank officials also supported these expectations. New York Federal Reserve Bank President John Williams said that US economic growth has shown a remarkable ability to withstand successive shocks, but he stressed that inflation is still high, and that returning it to the 2 percent level remains essential.
These developments helped the dollar record its largest daily gains in five months. The dollar index, which measures the performance of the US currency against a basket of major currencies, settled at 102.2 points.
In the currency market, the euro stabilized at $1.1148, while the Japanese yen rose 0.2 percent to 158.215 yen to the dollar.
As for cryptocurrencies, Bitcoin fell by more than 2 percent to $73,708, and Ethereum fell by about 5 percent to $2,223, recording its lowest levels in more than two months, amid investors’ fears that the Democrats’ control of the US Congress will lead to tightening regulatory oversight of the cryptocurrency sector.
