AI stock rout: Should Singapore investors buy the dip or cut exposure?

Technology stocks plunged on Nov 5 as traders assessed the implications of a Democratic sweep in the US midterm elections on artificial intelligence.

SINGAPORE – A brutal sell-off in US technology stocks has spread to Asia and Singapore, leaving investors to decide whether to buy the dip, cut exposure or wait to see if the companies driving the artificial intelligence (AI) boom stick to their spending plans.

The Nasdaq 100 plunged 6.4% on Nov 5, two days after the US midterms, wiping out about US$2.5 trillion in market value. The S&P 500 fell 4.4%, while the Philadelphia Semiconductor Index sank 12.2%.

The sell-off hit the chip-heavy markets of South Korea, Taiwan and Japan on Nov 6, and Singapore-listed technology stocks also took a beating.

The Democrats’ sweep of Congress raised the prospect of tighter scrutiny of AI at a time when investors were already questioning how quickly spending on chips and data centres would translate into profits.

Experts added that crowded AI bets and the use of borrowed money to speculate in the sector may have amplified the fall as funds and investors rushed for an exit.

Investors should watch whether a Democratic Congress’ greater scrutiny of electricity and water use, grid costs and permits leads to rules that actually delay data centre construction. The next clues will come from whether major cloud providers trim their spending plans and whether chipmakers lower their earnings forecasts.

What’s clear is that while data centre construction could slow, long-term demand for AI and computing power remains intact.

“AI demand, existing infrastructure and the technological opportunity did not disappear overnight,” Saxo chief investment strategist Charu Chanana said in a note to investors on Nov 6.

“Many leading technology companies still have substantial cash flows, established customers and significant competitive advantages.”

What has changed is market sentiment, and investors’ assessment of future growth, regulatory risks and the valuations they are willing to pay.

“The sell-off appears to reflect a combination of genuine uncertainty and amplified selling pressure, rather than an overnight collapse in business fundamentals,” she said.