The Japanese Nikkei 225 average closed down nearly 3% on Thursday, with chip-related stocks facing selling pressure. Escalating conflict in the Middle East dampened risk appetite, overshadowing record earnings and a robust outlook from TSMC.
The Nikkei 225 index fell by 2.8% to close at 66,835.54 points, having been down as much as 3.3% during the session. The broader Topix index declined by 1.5% to finish at 4,028.79. Market performance was weak overall, with 139 constituents of the Nikkei 225 falling, 85 rising, and one remaining unchanged.
"Semiconductor stocks have recently shown a clear divergence from the broader market, and today is no exception. High-tech stocks are undergoing a correction," said Hiroki Takei, a strategist at Resona Holdings.
TSMC reported a record net profit for the second quarter, which surged 77% year-on-year and exceeded market expectations. This was driven by robust performance bolstered by strong global demand for AI processors.
The world's leading producer of advanced AI chips also raised its full-year forecast for revenue growth in US dollar terms from over 30% to slightly above 40%. The company indicated that its capital expenditure over the next three years would be significantly higher than in the past three years.
Despite this, investors remained cautious. Memory chip maker Kioxia plunged 15%, becoming the biggest decliner on the Nikkei index.
Technology investment conglomerate SoftBank Group Corp fell 6.3%, while chip testing equipment maker Advantest Corp dropped 5.9%.
Takei noted that recent volatility in high-tech stocks appears to be driven more by supply-demand factors than fundamentals. He pointed to the significant decline in South Korean markets related to leveraged ETF issues and a notable increase in margin buying by Japanese individual investors in recent weeks.
Conflict in the Middle East also weighed on overall market sentiment. After the US launched two rounds of strikes on Wednesday targeting Iranian coastal defense facilities and missile bases, Iran retaliated by striking US military bases in neighboring countries.