Asian stocks fall after AI fears hit Wall Street

Most Asian shares dropped following a bruising session on Wall Street caused by fears the valuation of artificial-intelligence companies had become excessive.

The MSCI Asia Pacific Index slipped as much as 0.6% with Japan's largest technology firms leading declines. That was after the S&P 500 and Nasdaq 100 both tumbled Monday as a cheap AI model from Chinese startup DeepSeek fueled concern valuations may be hard to justify. Many Asian markets, including China and South Korea, are shut Tuesday for the start of the Lunar New Year holidays.

The dollar strengthened versus all of its Group-of-10 peers after US President Donald Trump said he'll soon put tariffs on foreign-produced semiconductors, pharmaceuticals and some metals to compel producers to manufacture in the country. Scott Bessent, whom the Financial Times said backed gradual universal levies, was confirmed as the next Treasury Secretary.

There were at least some signs Asian markets are stabilizing. While the Nikkei 225 Stock Average slipped 0.6%, the broader Topix erased its earlier losses. Among major tech firms, Advantest Corp. tumbled as much as 11% and SoftBank Group Corp. slumped 6%. The Hang Seng Index opened higher in Hong Kong.

"I don't see DeepSeek as revolutionary but rather a wake up call to recalibrate the AI trade," said Billy Leung, an investment strategist at Global X ETFs. "From a broader perspective, I'd expect this to create sectoral rotation rather than a broad market collapse. The early cycle AI hype focused heavily on hardware, but this may tilt toward software and cloud providers as the narrative and headlines mature."

Shares of China Vanke Co. rose as much as 14% in Hong Kong after the authorities vowed to support the developer, which reported a record loss on Monday.

Monday's AI slump drove new fissures into a market narrative that prevailed since the re-election of Donald Trump in November, the America-first, tech-fueled bullishness that saw a clear upward path for risk assets spurred by deregulation, tax cuts and even government sponsorship of AI investment.

US equity futures were little changed Tuesday after Monday's selloff. Treasuries edged lower in Asia with the 10-year yield rising one basis point to 4.55% after sinking nine basis points on Monday. The Bloomberg Dollar Spot Index rose 0.3%, extending Monday's gains.

Other Asian markets shut for Lunar New Year holidays include Taiwan and Vietnam. Bourses in Hong Kong and Singapore are set to close early.

Nvidia Corp., the poster child of the AI boom, slumped 17% in New York, wiping out $589 billion in market value, the most ever for a single stock. Still, even after a recent paring to curb their influence, the cohort of Nvidia, Apple Inc., Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Alphabet Inc. account for about 40% of the Nasdaq 100. It's roughly 30% in the S&P 500.

Chinese investors have much to ponder as they start their Lunar New Year holidays that last until next Tuesday. The nation's economic activity unexpectedly faltered to start the year, breaking the momentum of a recovery sparked by stimulus measures and underlining the need for Beijing to do more to prevent another slowdown.

Global traders' focus will be on earnings announcements from the likes of Microsoft and Apple this week to restore confidence in the so-called Magnificent Seven group of companies.

Investors are heading into yet another pivotal Big Tech earnings cycle with the companies' shares near record highs and valuations stretched. A key distinction this time: The group's profit growth is projected to come in at the slowest pace in almost two years.

DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.

The app distinguishes itself from other chatbots like OpenAI's ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with OpenAI's latest and has granted license for individuals interested in developing chatbots using the technology to build on it.