Artificial intelligence related stocks came under renewed selling pressure on October 13 as a sharp decline in semiconductor companies triggered concerns about intensifying competition, the sustainability of AI related profits and the returns from substantial investments in artificial intelligence infrastructure.

MSCI's broadest index of Asia Pacific shares outside Japan fell more than 2%, reaching its lowest level since late July. Nasdaq futures declined 0.77%, while European equity futures slipped 0.2%, indicating weakness across major markets.

South Korean chipmakers bore the brunt of the selling, with Samsung Electronics declining 8% and SK Hynix falling 10%. Taiwan Semiconductor Manufacturing Company dropped 1.8%, while Japan's Kioxia Holdings plunged 14%. SoftBank Group, which has significant exposure to artificial intelligence investments, declined 8%.

The selloff followed weakness in US semiconductor stocks after reports of rapid technological progress by Chinese memory chipmaker ChangXin Memory Technologies raised concerns that Chinese companies could narrow the technology gap with established global manufacturers. Investors are increasingly assessing whether rising competition could put pressure on the exceptional profit margins currently enjoyed by parts of the AI supply chain.

Charu Chanana, Chief Investment Strategist at Saxo, said the developments involving CXMT appeared to have triggered the decline in memory stocks, but the broader concern was that investors were becoming less tolerant of elevated AI valuations. Market participants are questioning not only the potential growth in AI demand but also how long current profitability and margins can be sustained as competition increases.

The weakness extended beyond individual semiconductor companies. South Korea's KOSPI fell more than 6%, marking its sharpest single day decline since July. Japan's Nikkei dropped 2.6%, while Taiwanese equities declined 2%. CXMT shares themselves fell as much as 5.3% to their lowest level since their July initial public offering, while China's blue chip index touched its lowest level in more than a year.

In India, AI linked companies also faced selling pressure. At 1.05 pm on October 13, E2E Networks shares were down 3.5% at Rs 710 per share. Black Box and Orient Technologies declined 1.5% and 1.2%, respectively, while Anant Raj fell 2%. These companies have exposure to areas such as cloud infrastructure, data centres and digital infrastructure, which investors associate with the expansion of AI computing capacity.

Energy equipment manufacturers also came under pressure as volatile crude oil prices and geopolitical developments complicated the outlook for the energy market. Brent crude futures traded at $105.9 per barrel, near a two week high, amid concerns surrounding developments in the Middle East and the Russia Ukraine conflict.

At 1.10 pm, Hitachi Energy India, GE Vernova T&D India and CG Power and Industrial Solutions were down between 3% and 5%, placing them among the weakest performers in the Nifty 200 index. The Nifty Energy index declined nearly 1% to 35,562.15 points.

The simultaneous weakness in AI related stocks and energy equipment companies highlights the range of risks facing investors. While AI investment has supported corporate earnings and economic growth over the past four years, concerns about concentrated market returns, competitive pressures and the timing of investment payoffs have become more prominent. Meanwhile, fluctuations in crude oil prices and geopolitical uncertainty are adding to the challenges of assessing the outlook for energy demand and related businesses.

Investor appetite for AI related assets will also be tested by Tencent Holdings' planned bond sale on October 13. The Chinese technology company is offering dollar denominated and offshore yuan denominated bonds in a transaction expected to raise at least $4.5 billion. The reception to the offering could provide an additional indication of investor demand for financing from major technology companies amid changing sentiment toward the AI sector.