The global equity mood deteriorated rapidly this week, driven by a aggressive test of the AI trade. While the sector had fueled most of the year’s gains, investors began cutting exposure to AI-linked winners following months of crowded positioning. This sell-off pushed Japan’s Nikkei into correction territory and caused Taiwan to suffer one of its worst sessions in years, according to exchangerates.org.uk.
Semiconductor Sell-off Despite Record Earnings
The downturn in chip stocks is particularly striking because it occurred alongside strong corporate performance. TSMC reported its fifth consecutive quarter of record earnings, with profits jumping 77%. However, this powerful set of earnings
failed to calm nerves, as investors pivoted their focus toward the massive capital expenditure required to sustain AI infrastructure.
The impact was felt heavily in Asia. The Kospi crashed 9% in one session, largely due to the collapse of semiconductor giants. Business Today reported that Samsung Electronics tanked 10.7% to 254,500 won, while SK Hynix shares fell 15.37% to 1,845,000 won. These two companies account for over 60% of the KOSPI’s total market capitalization, making the index exceptionally sensitive to this specific sector’s volatility.
U.S.-Iran Hostilities and the $100 Oil Threshold
Simultaneously, energy markets spiked as tensions between the U.S. and Iran escalated. Brent crude oil prices zoomed 13% in two days following renewed attacks over a weekend, climbing from $75.48 per barrel on Friday to $85.66 per barrel.
The price surge is tied to direct military and strategic actions. President Donald Trump announced the reinstatement of a blockade aimed at preventing tankers carrying Iranian oil from using the strategic waterway and proposed a 20% charge on all cargo transiting the strait, saying the proceeds should compensate the United States for providing security in the region. Further volatility arrived after Yemen’s Houthis targeted Saudi oil tankers, prompting Trump to warn of major military punishment
for Iran and its allies.
“The renewed disruption has interrupted the recent recovery in regional supply, reviving concerns about tighter global markets ,”
Saxo Bank, via morningstar.com
This energy shock has immediate downstream effects.
Broad Market Contagion and Inflation Risks
The combination of high energy costs and tech instability is creating a feedback loop of inflation anxiety. Higher oil prices are fueling fears that inflation will remain sticky, which may prompt the Fed to raise interest rates. This environment has already begun to drag down other assets; gold prices slipped below $4,000 a troy ounce and are on track for a weekly decline of more than 3%, according to Morningstar.
The contagion spread to Wall Street, where the Nasdaq Composite sank more than 2% on Thursday. Beyond the AI trade, disappointing second-quarter earnings from Alphabet and Tesla—the first among the so-called ‘Magnificent Seven’ corporations to release their results this season—added further stress to the indexes.
For investors, the current landscape is a precarious balance. They are caught between a necessary valuation reset for AI and a geopolitical crisis that threatens the global energy supply. While Brent crude remains well below the peaks seen during earlier geopolitical crises, when the global benchmark briefly traded close to $120 a barrel on fears of widespread supply disruptions, the sudden 13% jump in two days signals a market that is highly sensitive to any further escalation in the Middle East.
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