The AI Domino Effect: How a U.S. Tech Chill Sent Asia-Pacific Markets Tumbling
A cold wind blowing from Wall Street has swept across the Asia-Pacific, turning the region’s markets a deep shade of red. The trigger? A sudden, sharp case of doubt over the sky-high valuations of artificial intelligence (AI) companies.
On Wednesday, investors from Tokyo to Sydney watched their screens with concern as major indexes fell. The sell-off was a direct echo of a troubling day in the United States, where a plunge in famous AI-related stocks like Palantir started a wider market retreat.
The numbers told a clear story. Japan’s Nikkei 225 slid 0.25%. South Korea’s Kospi took a much heavier hit, tumbling 1.9%. Australia’s S&P/ASX 200 started its day down. The mood was cautious, with futures pointing to a soft open for Hong Kong’s Hang Seng index as well.
This collective stumble follows a stark warning from some of the most powerful voices in global finance. On Tuesday, the CEOs of banking giants Goldman Sachs and Morgan Stanley told investors to prepare for a potential market “correction” a polite term for a significant drop over the next one to two years.
Their caution seems to have hit a nerve. After months of a powerful “everything rally,” where stocks seemed to only go up, the mood has shifted.
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“Finally, a sell-off hits the tape,” said Andrew Jackson, head of Japanese equity strategy at Ortus Advisors. He noted that the comments from the Wall Street chiefs were the catalyst, causing the relentless rally to “take a breather.”
The epicenter of the tremor was in the U.S. tech sector. Overnight, the Nasdaq Composite, which is packed with technology companies, fell over 2%. The broader S&P 500 also declined by 1.17%. The most telling sign of the AI anxiety was the performance of Palantir.
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The software company, known for its work in AI, actually reported very strong quarterly results and gave an optimistic forecast. Yet, its stock price fell around 8%. This is a classic sign of a market phenomenon known as “buy the rumor, sell the news.” It means that even good news wasn’t enough to satisfy investors who had already driven the stock’s price to what many considered unrealistic heights.
This is the core of the problem now facing global markets. The incredible excitement around artificial intelligence has pushed the valuations of AI companies to levels not seen since the dot-com bubble of the year 2000.
The S&P 500’s forward price-earnings ratio, a key measure of whether stocks are expensive, has soared above 23. This means investors are paying a lot of money for each dollar of expected company profits. When this number gets too high, it makes markets nervous and vulnerable to a sudden drop.
Anthony Saglimbene, a market analyst at Ameriprise, put it simply in an interview with CNBC. He said that without a healthy pullback, stock valuations are beginning to look “really stretched.”
For months, AI stocks have been the engine pulling the entire market train forward. Now, as that engine shows signs of sputtering, the entire convoy is slowing down. The message from Wall Street to the Asia-Pacific is clear: the era of easy, AI-driven gains may be hitting a pause, and a new phase of caution has begun.
Author: Junaid Arif
Date: 05 Nov, 2025
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