Japanese Nikkei Index Plunges to 3-Week Low Amid Market Volatility

Japan's Nikkei Plunges to Three-Week Low as AI Chip Rally Shows Cracks

Japan's benchmark Nikkei index tumbled over 2% on Monday, hitting its lowest level in three weeks as semiconductor stocks led a sharp selloff. The decline mirrors growing investor skepticism about inflated AI valuations that began on Wall Street last Friday, signaling potential turbulence ahead for tech-heavy markets globally.

Market Carnage Concentrated in AI Darlings

The Nikkei 225 closed at 41,849.82 points, down more than 2%, after touching 41,843.96 earlier in the session—its weakest point since August 8. Remarkably, just two heavyweight stocks accounted for over half of the index's decline, highlighting how concentrated Japan's AI bet has become.

Advantest, the chip testing equipment manufacturer that supplies Nvidia, crashed 9.1% as investors questioned whether the AI infrastructure boom can sustain current valuations. SoftBank Group, Masayoshi Son's conglomerate known for aggressive AI startup investments, fell 6.3% as concerns mounted about the venture capital environment cooling.

Contagion from Wall Street's Reality Check

Monday's rout directly followed Friday's tech selloff on Wall Street, where investors began reassessing whether AI companies can deliver profits matching their sky-high valuations. This pattern of Asian markets amplifying U.S. tech volatility has become increasingly common as global portfolios concentrate in similar AI-exposed names.

The broader Topix index, which includes more traditional Japanese companies, fell a more modest 0.8%—suggesting the pain remains largely confined to the semiconductor and AI ecosystem rather than reflecting broader economic concerns.

Warning Signs for the Global AI Trade

Japan's heavy weighting in semiconductor and AI-adjacent stocks makes it a canary in the coal mine for global tech sentiment. Advantest's dramatic fall is particularly telling, as the company sits at the critical intersection of AI chip production—any slowdown in demand for testing equipment could signal cooling in the broader AI infrastructure buildout.

SoftBank's decline adds another layer of concern. The conglomerate's Vision Fund has been among the most aggressive backers of AI startups globally, and its stock performance often reflects investor appetite for high-risk, high-reward AI bets. A sustained retreat could indicate that the easy money phase of AI investing is ending.

What This Means for Investors

The concentration risk in Japan's AI trade is now fully exposed. With just two stocks driving half of the Nikkei's decline, investors face the uncomfortable reality that their diversified Japanese exposure may actually be a concentrated bet on AI sustainability.

For global portfolios, Japan's Monday selloff suggests that AI-driven gains across markets may be more fragile than previously assumed. As central banks maintain restrictive policies and investors demand clearer paths to profitability, the AI sector's premium valuations face their most serious test since the current boom began.