Asian stocks edge up amid fears of AI rally overheating

Published Fri, Jul 3, 2026 · 09:33 AM

STOCKS in Asia swung between gains and losses as investors grappled with concerns that the artificial intelligence-fuelled rally has run ahead of itself.

Gauges in Japan fell while those for South Korea advanced, leaving the broader MSCI Asia Pacific Index slightly higher.

As at 9.16 am Tokyo time, the S&P 500 futures were little changed, as were the Hang Seng futures and Japan’s Topix. Australia’s S&P/ASX 200 rose 0.5 per cent.

The moves came after the tech-heavy Nasdaq 100 Index fell 1.6 per cent, while the Philadelphia Semiconductor Index tumbled 5.4 per cent, extending its losses over the past two weeks to 12 per cent.

Elsewhere, Treasuries ended the holiday-shortened week with lower short-term yields after June employment data and lower oil prices challenged expectations for Federal Reserve rate hikes this year.

There will be no cash trading in Treasuries on Friday (Jul 3) due to a US holiday. The dollar fell in New York trading.

The early gains offered some relief after a sell-off in technology stocks, particularly chipmakers, fuelled concerns that the AI-driven rally may have gone too far, too fast.

While confidence in the technology’s long-term potential remains strong, investors are increasingly questioning whether sky-high valuations can keep pace with rising spending and a more crowded market.

“There are concerns that the high memory prices will bring AI solutions that need less memory, and that the data centre build-out may not all get built in the end,” said Louis Navellier of Navellier & Associates.

“And that token pricing of AI software will push users to lower-cost versions, especially Chinese offerings, and is bringing increased caution regarding the enthusiasm for all things AI.”

In other corners of the market, American crude slipped early Friday as tanker traffic through the Strait of Hormuz increased further, adding to a gush of near-term supply while talks between the US and Iran continue.

The commodity traded just under US$68.50 a barrel.

Gold held its gains from the New York session as the weak US jobs numbers eased rate-hike bets. The non-yielding metal, which is less attractive when rates are increased, traded around US$4,125 an ounce.

The yen gave up some of its gains from the previous session to trade near 161.30 to the greenback.

Earlier, the S&P 500 and Nasdaq 100 received a boost after data showed the labour market cooled in June, reinforcing expectations that the Fed can afford to be patient on interest rates.

Nonfarm payrolls increased 57,000 last month after downward revisions to the prior two months took some of the shine off recent blockbuster reports, Bureau of Labor Statistics data showed on Thursday.

The unemployment rate fell to 4.2 per cent as labour force participation plunged.

Traders pared back expectations for additional Fed rate hikes, though they continued to price in at least one increase this year.

“A labour market that is still expanding, but no longer overheating, allows the Fed to remain patient while assessing price pressures,” said Andrew Dubinsky at UBS Chief Investment Office.

“If disinflation continues as expected, policymakers will have little reason to move away from a holding pattern in the second half of the year.” BLOOMBERG