Japan's Nikkei falls more than 2% on AI spending worries

Synopsis

Japan's Nikkei share average dropped more than two percent on Friday. This decline was spurred by concerns over heavy artificial intelligence spending. Google parent Alphabet's shares sank significantly overnight, impacting global markets. Chip-related shares and technology investor SoftBank Group also experienced losses. However, shares supported by domestic demand and shippers saw some gains.

Japan's Nikkei share average fell more than 2% on Friday, as a sharp decline in Google parent Alphabet shares spurred concerns about heavy AI spending.

The Nikkei was down 2.69% at 64,634.04 as of 0112 GMT, while the broader ‌Topix slipped ⁠1.28% ⁠to 4,002.09.

The Nikkei has lost more than 7% so far this month, tumbling into correction territory last week. Its moves have been heavily affected by the tech-heavy South Korean benchmark KOSPI and the U.S. Philadelphia semiconductor index.

Shares of Alphabet sank 7% overnight after the company reported higher ⁠spending plans ‌while it also burned cash. Wall Street indexes closed lower, with the Nasdaq shedding more than 2%.

Concerns ⁠resurfaced over whether heavy spending on AI infrastructure is sustainable after Alphabet shares fell sharply overnight, said Kazuaki Shimada, chief strategist at IwaiCosmo Securities.

"The (Nikkei) index has been affected by overseas factors, not local cues. Many Japanese companies will start reporting their earnings from today, and if their outlook is strong, the index's trend ‌may change," said Shimada.

Chip-related shares fell, with Advantest and Tokyo Electron losing 6.33% and 5.43%, respectively.

Technology investor SoftBank Group fell ⁠7.42% and memory chip maker Kioxia lost 4.4%.

Shares supported by domestic demand rose, with Central Japan Railway and East Japan Railway rising 1.17% and 0.6%, respectively.

Shippers rose, with Kawasaki Kisen and Mitsui OSK Lines up 0.61% and 0.88%, respectively.

Otsuka Holdings, a maker of Pocari Sweat, rose 1.6% to become the top percentage gainer on the Nikkei.

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