Taiwan Semiconductor Manufacturing Co (TSMC) shares fell the most in three months, as trading resumed in Taiwan after a two-day typhoon break, joining a global tech rout as investors dramatically soured on the promises of artificial intelligence (AI). 

Share declined as much as 6.5% in Taipei early on Friday, dragging down the benchmark Taiex index, which fell more than 4% to approach a technical correction. Other chip stocks ASE Technology Holding Co and MediaTek Inc slumped at least 5% each.  

Lacklustre earnings from US big tech have set off a reckoning on the AI hype. The latest tech rout adds further pressure on TSMC, whose record-breaking rally has been faltering since mid-July. A favoured AI play due to its cutting-edge chips and stellar earnings, concern over pricey valuation and the risk of tighter US curbs on chip sales to China have poured cold water on the bullish momentum. 

The rotation out of valuation-stretched tech names has been “exacerbated by weak results from early tech reporting and some negative news flow on China tariffs,” said Vey-Sern Ling, the managing director of Union Bancaire Privee. “Whether the tech sell-off will continue will depend on key results next week, which will see four of the Magnificent Seven stocks report.” 

TSMC’s Taiwan listing has now fallen more than 14% from its peak. Its decline spells trouble for the local financial market given the stock accounts for more than a third of Taiex’s weighting. 

The change of fortunes for the island’s stocks has been swift. Earlier this year, surging interest in AI shares had triggered an unprecedented investment boom in Taiwan. The rally led to retail investors piling into exchange-traded funds, and prompted local regulators to warn over herding behaviour. 

TSMC’s recent drop could be due to profit taking, while “whispers of a potential slowdown in the AI investment boom might also be at play”, said Manish Bhargava, the chief executive officer of Straits Investment Management Pte Ltd. “The wider context of AI momentum can’t be dismissed. The burning question is - is the AI rally running out of steam?”

A TSMC spokesperson said there had been no impact from the typhoon as of Thursday. 

Taiwan’s US$2.5 trillion  stock market was shut on Wednesday and Thursday, as the deadly Typhoon Gaemi approached after inundating the Philippines. The last time that Taipei was shut for two days in a row for a typhoon was in 2016.

The Taiwanese dollar gained as much as 0.2% against the greenback on Friday. Earlier this month, it fell to the weakest since 2016, amid intensified outflows from local equities.

  - Bloomberg