The rally that had powered Asian chipmakers earlier this year has hit a turbulent stretch, with dramatic price action bringing renewed doubts about the profitability of surging AI-related capital expenditure.
In South Korea, the KOSPI has been particularly volatile as massive swings in shares of Samsung Electronics and SK Hynix became nearly daily occurrences. The index slid 6% on Thursday, leaving it 27% below its June peak and exacerbating losses for some leveraged retail funds.
That drop has amplified investor unease about the mounting cost of AI capex and whether that investment will ultimately produce adequate returns. Market participants are now focused on Taiwan Semiconductor Manufacturing Co (TSMC) as a key test. The foundry, which produces the advanced chips sold to Nvidia and other AI hardware providers, reports second-quarter results at 0530 GMT.
Consensus expectations call for a near 60% surge in net profit for the quarter. Yet market sentiment suggests that even a beat may not be enough to satisfy investors. To avoid punitive selling, TSMC would likely need not only to top forecasts but also to offer exceptionally strong guidance. The response to ASML’s recent results serves as a reminder of how unforgiving markets can be when future outlooks fall short of lofty expectations.
While the rotation out of memory and hardware stocks has left most Asian equity markets trading lower, European futures appeared set for a flat open. U.S. futures added 0.1% after a stronger overnight session driven by cooler inflation readings and solid bank earnings.
Investors are also awaiting quarterly reports from Netflix and GE, plus results from a handful of banks, including U.S. Bancorp and State Street, later in the day.
Snapshot of select market moves and symbols: STT +1.6%, GE +1.87%, USB +1.4%, LCO -0.45%, NFLX +0.2%, TSM -0.22%, KS11 -6.49%, 000660 -12.1%, 005930 -8.86%.
On the macro calendar, U.S. retail sales for June are forecast to rise a modest 0.2% following May’s 0.9% gain, with the control group seen at a firmer 0.5%. Any signs of softness in consumer spending could support the dovish bend in U.S. Treasury markets and offset concerns about demand.
Geopolitical developments remain a background source of risk. The U.S. military carried out another round of strikes on Iran, and Tehran said it had targeted a gathering of U.S. troops. Those tensions have contributed to a sharp rise in oil prices, with Brent crude up 18% over the past two weeks to $85 a barrel, keeping central banks cautious.
Policy moves have reflected that caution. South Korea raised rates for the first time in 3-1/2 years. Meanwhile, bond investors have taken some comfort from benign CPI and PPI prints, which have reduced the market-implied probability of a July Federal Reserve hike to just 10%, down from more than 40% earlier this month.
Key developments that could influence markets on Thursday:
- TSMC earnings due at 0530 GMT
- UK monthly GDP, industrial output and trade balances for May
- Earnings from Netflix, GE Aerospace, U.S. Bancorp and State Street
- U.S. June retail sales data and weekly jobless claims
The day’s coverage also highlights debate around specific stock valuations. For example, questions are being posed about whether State Street (STT) is undervalued or a potential pitfall for investors, with some market tools and strategies cited by market participants to assess fair value.
Overall, the mix of corporate earnings, a pivotal TSMC print, fresh U.S. retail data and heightened geopolitical risk is setting a cautious tone across global markets.