The global artificial intelligence trade experienced renewed volatility this week, particularly impacting Asian markets. Following a period of relentless selling, Wall Street’s major AI players, including the Philadelphia Semiconductor Index and the Nasdaq 100, showed some stabilisation on Monday night. However, this reprieve was short-lived as the South Korean market opened on Tuesday, initiating a fresh wave of sell-offs.
Elice, a data centre infrastructure group, made its debut on the South Korean market on Tuesday morning, only to see its share price plummet 33 per cent. This decline reflects a broader neocloud data centre rout, which has previously derailed IPO hopefuls like Firmus and Nscale, and seen CoreWeave’s market value drop significantly. South Korea’s KOSPI index, home to chip giants SK Hynix and Samsung Electronics, fell significantly before paring losses, with some investors describing the sell-off as indiscriminate. This sustained shift in AI sentiment highlights the interconnectedness of the ecosystem, challenging assumptions about demand from these neocloud services and affecting chip and memory stock projections.
Amidst this market turbulence, Morgan Stanley strategists Andrew Pauker and Michael Wilson offer a nuanced perspective on corporate earnings. While they previously noted a ‘rolling earnings recession’ from 2022 to early 2025, they now observe an ‘early-stage earnings recovery’ driven by cost-cutting and inflation-led price increases. This has transitioned into a ‘mid-cycle earnings story,’ where quality companies with robust free cash flow, strong balance sheets, and operational discipline are expected to lead market growth as financial conditions tighten.
Pauker suggests that while the supply side of the AI boom receives much attention, the outlook for AI demand is underestimated. Morgan Stanley’s research indicates that the proportion of S&P 500 companies providing quantifiable evidence of AI impact has quadrupled to about 25 per cent over the past three years. More strikingly, companies identified as AI adopters by the firm’s global research team have seen their net margin climb from approximately 15 per cent to 17 per cent in two years, signalling a significant profit boost from the early stages of AI adoption, often overlooked amidst the broader market jitters.
