$32 billion wiped out! Softbank market cap plunges; drop in Asian AI-linked companies drives fall

SoftBank Group’s shares saw a dramatic 14% decline on Wednesday, accompanied by broader falls across Asian AI-related companies, reflecting similar drops in their US counterparts. Investors displayed increasing caution towards the high valuations in this heavily invested sector.The Japanese conglomerate, with its extensive AI investment portfolio spanning various sectors, saw a substantial $32 billion reduction in market capitalisation, according to a CNBC report.SoftBank maintains a dominant position in Arm Holdings, a British firm specialising in mobile and AI processor designs, and recently strengthened its AI capabilities through the Ampere Computing acquisition. Arm Holdings’ Nasdaq-listed shares decreased by 4.71% in the previous session.The group’s investments include prominent AI developers including OpenAI, alongside emerging ventures such as OpusClip, a generative-AI video-editing platform, and Tempus AI, which specialises in machine learning for precision medicine. The recent decline has resulted in a cumulative market value loss of nearly $50 billion over two consecutive sessions, following Tuesday’s 7% decrease.The downturn affected other Japanese technology firms, with Advantest seeing an 8% reduction, Renesas Electronics falling by 5.48%, and Tokyo Electron declining by more than 5%. South Korean semiconductor manufacturers Samsung Electronics and SK Hynix both experienced nearly 6% decreases, despite their previous contributions to the Kospi Index’s record performance, according to CNBC.In wider Asian markets, Taiwan’s TSMC recorded a 2% fall, whilst Chinese technology giants Alibaba and Tencent saw declines of over 3% and more than 2% respectively.The market witnessed a downturn after Palantir, a US software firm, experienced an 8% decline despite exceeding third-quarter expectations, as elevated valuations across the artificial intelligence sector affected investor confidence. The AI-driven surge has elevated the S&P 500’s forward P/E ratio beyond 23, reaching levels unseen since 2000, as reported by FactSet.The enthusiasm surrounding AI has generated worries about potential market instability.“There is fear of an AI correction, and if it comes, it will sweep the rest of the market with it due to the heavy weight of the leading names,” market veteran Louis Navellier wrote in a note according to CNBC.Analysts have observed that AI company valuations increasingly mirror the dot-com period of the late 1990s, with share prices advancing substantially ahead of realistic profit projections.Jared Bernstein, former head of the Council of Economic Advisers during the Biden administration, highlighted that AI investment’s economic share exceeds the internet bubble era by nearly one-third, suggesting the disparity between earnings potential and expenditure “certainly looks bubbly.”