This article first appeared on GuruFocus.
Japanese stocks took a sharp hit on Monday as investors moved out of AI-linked names, with strong US jobs data raising the possibility that the Federal Reserve may keep interest rates higher for longer. The Nikkei 225 Stock Average fell 3.9%, marking its steepest decline since March 9, while the broader Topix dropped 2.5%. Risk appetite also weakened after Iran and Israel exchanged strikes, pushing oil prices higher and adding another layer of pressure to an already fragile market.
The pain was concentrated in Japan’s AI trade. SoftBank Group Corp. (SOBKY), Kioxia Holdings (KXIAY), Murata Manufacturing (MRAAF), Renesas Electronics (RNECY) and Ibiden (IBIDY) were among the names hit hardest, with SoftBank, Kioxia and Murata each falling more than 10% at one point. These were not weak stocks going into the selloff. Many AI-linked shares had recently touched record highs as investors chased the AI infrastructure buildout, while Kioxia had surged more than 580% in 2026 even after Monday’s decline. But after the Nasdaq 100 fell about 5% and the Philadelphia Semiconductor Index dropped 10% on Friday, Japan’s AI winners suddenly looked more vulnerable.
The bigger concern for investors is that this could be more than a one-day reset. Rajeev De Mello of Gama Asset Management said investors had already started cutting tech exposure last week before strong US labor data and renewed Middle East tensions added to uncertainty ahead of US inflation data. Andrew Jackson of Ortus Advisors said Japanese semiconductor-related shares looked ready for a sizeable correction, while the upcoming SpaceX IPO could possibly be pulling capital away from the AI trade. For now, defensive pockets such as retail, insurance, food and some videogame shares are providing support as investors rotate away from the hotter corners of the market.