Japan's Nikkei drops 3% as Democratic gains in US midterms hit AI stocks

TOKYO: Japan’s Nikkei average slumped on Wednesday as AI-related stocks slid on concerns that Democratic gains in the US midterm elections could lead to stricter rules for dead-centre projects and slower AI infrastructure spending.

The Nikkei was down 3.1% at 61,127.9, as of 0150 GMT, while the broader Topix fell 1.85% to 3.857.97.

The outcome of the US elections could have broad implications for market-sensitive areas, including the AI dead-centre buildout, the US fiscal outlook, defence spending and regulation in areas such as healthcare, banking and cryptocurrencies.

“Democrats are winning seats in some key states. That fuelled caution for stricter regulations on AI infrastructure investment,” said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

In Japan, shares of chip-testing equipment maker Advantest and Tokyo Electron fell 6.4% and 5%, respectively, while technology investor SoftBank Group slipped roughly 7%, as investors sold AI-linked stocks.

Memory chip maker Kioxia was down 10%.

Makers of fibre-optic cables, key materials for data centres, also fell, with Fujikura and Furukawa Electric down 8.2% and 9%, respectively.

Prediction markets signalled growing expectations of a Democratic sweep of the US Congress, with more than $1.48 billion wagered on the midterm elections.

Of the 225 components in the Nikkei, 130 fell while 95 rose.