The tech rout that swept through Asian markets overnight has sent a chill through global exchanges, with London’s FTSE 100 bracing for a sharp open as investors reassess the frothy valuations that defined the recent record rally. The sell-off, triggered by a sudden shift in sentiment in Silicon Valley, has raised questions about whether the AI-driven bull run has peaked, or if this is merely a healthy correction for an overheated sector.
In Tokyo, the Nikkei 225 plunged 3.2 per cent, led by chip-making giant Tokyo Electron and SoftBank Group, while Seoul’s Kospi shed 2.8 per cent as Samsung Electronics and SK Hynix took the brunt of the selling. Hong Kong’s Hang Seng Tech index tumbled 4.1 per cent, with Alibaba and Ten Holdings both dropping over 5 per cent. The sell-off was triggered by a sharp reversal in US tech stocks overnight, where the Nasdaq Composite fell 2.6 per cent, its worst session since March, as investors locked in profits from a rally that had pushed the index to record highs just days earlier.
The catalyst appears to be a growing unease about the sustainability of AI-related spending. A note from Goldman Sachs suggested that returns on AI infrastructure investments may not materialise as quickly as hoped, causing a ripple effect across the sector. ‘We are seeing the first real test of the AI thesis,’ said Julian Vane. ‘Investors are waking up to the reality that while AI is transformative, it is not a magic wand. The hardware and energy costs are immense, and the regulatory landscape is tightening. This could be the beginning of a broader reassessment.’
London’s FTSE 100, which has been relatively insulated from the tech frenzy due to its heavy weighting in energy and financials, is not immune. Index futures pointed to a drop of over 1 per cent at the open, with tech-heavy growth stocks such as Scottish Mortgage Investment Trust expected to lead the decline. The contagion risk is real, but the FTSE’s composition may provide a buffer. ‘The UK market is less exposed to the high-growth, high-valuation tech stocks that are getting hammered,’ Vane noted. ‘But in a globalised market, sentiment contagion is inevitable. We will see some pain today.’
The sell-off also comes amid growing scrutiny of big tech’s market power. The European Union’s Digital Markets Act is forcing changes to business models, and the US Department of Justice’s antitrust case against Google is intensifying. Meanwhile, China’s crackdown on the tech sector continues, with new data security rules expected soon. ‘This is a perfect storm of regulatory risk and valuation concern,’ Vane added. ‘The user experience of society is about to change as we move from an era of unchecked innovation to one of oversight and accountability.’
For investors, the key question is whether this is a buying opportunity or the start of a deeper downturn. The tech-heavy Nasdaq is still up 17 per cent for the year, and profit margins at leading firms remain healthy. But the rapid sell-off suggests that sentiment has turned fragile. ‘The era of easy money in tech is over,’ Vane concluded. ‘We are entering a phase where fundamentals will matter again. Companies that can demonstrate real-world utility and ethical AI will weather the storm. Those riding on hype will be left behind.’
As the London market opens, traders will be watching closely for signs of a deeper rout. The Bank of England has signalled that it is monitoring the situation, but no intervention is expected. The question now is whether this is a necessary correction or the beginning of a Black Mirror-like descent into a tech winter. Either way, the party has paused.
