Nikkei falls again as AI stocks sell off, chip shares lead losses

2026-07-17

The Nikkei average fell for a second straight session in Tokyo trading on the 17th. At midday, it was down 2,939 yen, or 4.4%, from the previous day at 63,896 yen, and selling remained dominant in the afternoon, briefly pushing losses beyond 4,000 yen. Globally, overly optimistic growth expectations for the artificial intelligence, or AI, industry have faded, and caution over high valuations is driving the selling.

Selling spreads across semiconductor stocks

Kioxia Holdings closed the morning session 16% lower at 52,390 yen. That was less than half its record high of 112,700 yen set on June 22, and at one point during trading it was sold down to the lower limit of its daily price range. Its market capitalization slipped from first to fifth place.

Yoshikazu Saito, senior analyst at IwaiCosmo Securities, said concerns that Meta is overinvesting and that a new listing by a Chinese memory maker could worsen supply-demand conditions are dampening investor sentiment. Advantest fell 11%, Tokyo Electron dropped 9% and SoftBank Group declined 10%. With four stocks including Kioxia, the Nikkei's morning loss widened to 2,084 yen.

Selling continues despite strong earnings

Hiroshi Namioka, chief strategist at T&D Asset Management, said the selling despite strong earnings from Taiwan Semiconductor Manufacturing Co., or TSMC, and Dutch semiconductor equipment maker ASML Holding suggests market expectations had become too high.

The South Korean market was closed for a holiday on the 17th. Risk taking was restrained as moves in South Korean semiconductor stocks have recently often spilled over into the Tokyo market. Ahead of Japan's three-day holiday, however, there was also some unwinding of accumulated bullish long positions. Takehiko Masuzawa, head of equity trading at Phillip Securities Japan, said there was a move to reduce positions.

Funds flow into domestic-demand stocks

While the Nikkei slumped sharply, about 40% of issues on the Tokyo Stock Exchange Prime market rose in morning trade. Domestic-demand stocks such as retailers and railways provided support, and Seven & i Holdings rose 3%. The stock drew interest after it was disclosed that the company is considering an investment in Poland's largest convenience store operator as it seeks to expand into Eastern Europe.

Kohei Ohnishi, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said the market was not in a broad risk-off phase and added that 'money is flowing into defensive and value stocks.'

Focus turns to US tech earnings

As a possible trigger for a rebound in AI and semiconductor stocks, attention is on earnings from major US tech companies for the April-June 2026 quarter, which will start to come in next week. Alphabet is due to report on the 22nd, Intel on the 23rd, and Microsoft and Meta on the 29th, with many market participants wanting to check the business conditions and future plans of companies that have been making large AI-related investments.

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