Asia AI stock rally shows cracks as 3 indexes whipsaw

The artificial-intelligence trade that powered Asian stocks to record highs is showing signs of strain.

Japan's Nikkei 225, Taiwan's TAIEX and South Korea's KOSPI have whipsawed in recent weeks as doubts about AI profitability and infrastructure spending sustainability spread.

"The current phase of AI development is overwhelmingly infrastructural," Allianz Research said in a recent report, as hyperscalers, governments and corporations race to build AI computing capacity.

The five best-performing non-US stocks tracked by MSCI's All Country World Investable Market Index during the first half of 2026 were all Asian AI supply chain companies. Samsung Electro-mechanics surged 660%, Japan's Kioxia Holdings climbed 631%, Hong Kong-listed Kingboard Laminates jumped 535%, Taiwan's Yageo Corp. rose 357% and Unimicron Technology gained 345%.

The question now is whether those gains can hold. Goldman Sachs expects South Korea and Taiwan to post the strongest earnings growth through 2027, but retail trading and shifting views on AI could drive further market volatility, the bank's analysts wrote in a note on emerging markets this week.

Supply Chain Winners Face Profitability Questions

The companies that rode the AI infrastructure wave occupy critical positions in the hardware supply chain. Samsung Electro-mechanics produces semiconductor substrates and multilayer ceramic capacitors used in high-performance servers. Kioxia, spun off from Toshiba in 2017 and acquired by a Bain Capital-led consortium for about $13 billion, makes NAND flash memory and storage products for AI data centers. Kingboard Laminates supplies materials for printed circuit boards, while Yageo and Unimicron manufacture capacitors, resistors and IC substrates that connect advanced chips to server systems.

The concentration of gains in these names has left Asian tech indexes vulnerable to any shift in the AI narrative. A single disappointing earnings report or capex guidance cut from a major hyperscaler could trigger a broad selloff, analysts said. Kioxia became Japan's most valuable company by market capitalization at around $300 billion during the rally, making it a bellwether for the entire trade.

Earnings Growth vs. Valuation Risk

Goldman Sachs sees South Korea and Taiwan delivering the strongest earnings growth among emerging markets through 2027, a view that has drawn investors into the region despite the recent volatility. The semiconductor memory supercycle is still not fully priced into North Asian markets, the bank said.

But the same factors that drove the rally — heavy retail participation and AI-themed momentum trading — could amplify any downturn. The three indexes have already pared some of their gains in recent weeks as the profitability debate intensified. The USD/JPY exchange rate has also added pressure, with a stronger yen weighing on Japan's export-heavy Nikkei.

This article is for informational purposes only and does not constitute investment advice.