Asian stock markets faced a downturn on Monday, driven by growing concerns over the massive funding requirements of artificial intelligence (AI) projects. The unease comes ahead of a crucial week packed with earnings reports, with investors wary of the sector's ability to generate sufficient revenue to justify the heavy upfront investments. Japan's Nikkei index dropped 2.0%, following a 5.4% loss last week, while South Korea's market fell 1.6% after shedding over 14% the previous week.
A slight decline in oil prices provided some relief to bonds and Wall Street stock futures, helping to limit the extent of Asia's losses. Brent futures fell 1.6% to $108.06 a barrel, and US crude futures lost 0.7% to $100.70 a barrel. The drop in oil prices followed US President Donald Trump's announcement of potential sanctions waivers on Russia, though he later clarified that a final decision had not been made.
Geopolitical tensions, including reports of another tanker hitting a mine in the Strait of Hormuz, contributed to a rally in sovereign bonds. The 10-year Treasury yield fell 3 basis points to 5.0645%, marking its largest weekly decline in over eight months. This shift supported S&P 500 futures, which edged up 0.5%, and Nasdaq futures, which rose 0.8%.
Investors are closely watching earnings reports from major tech firms, including Meta, Lam Research, and Texas Instruments, as well as Elon Musk-led companies SpaceX and Tesla. Meta is one of five AI hyperscalers expected to increase capital spending to about $1.2 trillion next year, according to Goldman Sachs. Rising government bond yields and wider corporate credit spreads are increasing financing costs, making it harder to sustain AI infrastructure investments.