AI Profitability Doubts Trigger Global Tech Sell-Off; BOJ Holds Rates

Key points

• Alphabet shares dropped 12.6%, its worst day in over 20 years, after quarterly results showed negative cash flow due to AI spending.
• Intel shares fell 23% after hours and Amazon dropped 7%, as investors worried about mounting investment requirements and cash burn.
• South Korea's KOSPI index fell nearly 5%, with chipmakers Samsung Electronics and SK Hynix leading the losses.
• Japan's Nikkei 225 index declined 2.4%, while the Bank of Japan held its policy rate steady at 1.25%.
• U.S. 10-year Treasury yields fell to 4.91%, marking the largest monthly drop since December 2023, as investors moved into bonds.

Background

This market turmoil follows a period of rising inflation and recent rate hikes by both the Federal Reserve and the Bank of Japan. In late October 2026, the Fed held rates at 3.75%-4.0% despite inflation concerns, while the BOJ had recently raised rates to a 31-year high. Investors have been closely watching for signs that inflation is sustainably approaching central bank targets, which could lead to further tightening in December. The current sell-off contrasts with earlier optimism about AI growth, as markets now demand evidence that heavy infrastructure spending translates into sustainable revenue.

How outlets are covering it

Investing.com and AP News emphasize the broad impact of Alphabet's earnings on Asian markets, noting that chipmakers and AI-related stocks led the losses. Yahoo Finance highlights the shift in investor sentiment, with analysts questioning whether shareholders will earn adequate returns on enormous capital deployed in AI. The Financial Times, behind a paywall, suggests the global tech rout is deepening as U.S. earnings stoke AI spending fears. All sources agree that the Bank of Japan's decision to hold rates was expected, but Yahoo Finance notes that the BOJ's plan to accelerate ETF sales next year may have spooked markets initially, though some strategists view it as a positive sign of confidence. AP News points out that the U.S. has been pressuring Japan to raise rates due to the weakening yen, adding another layer to the monetary policy debate.

Why it matters

The sell-off signals a potential shift in market sentiment regarding the profitability of AI investments, which could affect global economic growth and corporate valuations. The BOJ's decision to hold rates, combined with falling bond yields, reflects investor caution and a search for safety amid rising inflation and geopolitical tensions. The decline in tech stocks could have ripple effects on consumer spending and global demand, as price hikes for AI-related infrastructure may squeeze consumers. Additionally, the move into bonds and haven currencies like the yen and Swiss franc indicates heightened risk aversion, which could influence global monetary policy and trade dynamics in the coming months.

What to watch

Investors will closely watch for further signs of AI profitability and corporate earnings from other tech giants. The Bank of Japan's potential rate hike in December, as suggested by recent inflation data, could impact the yen and global markets. The Federal Reserve's next decision, with markets pricing in an 82.6% chance of a hike, will also be crucial. Additionally, the resolution of the Binance hack and its impact on cryptocurrency markets could influence broader market sentiment. Geopolitical tensions, particularly in the Strait of Hormuz, may continue to affect oil prices and inflation, complicating the outlook for global monetary policy.