Asian stocks advanced on Wednesday, approaching their highest levels since last week’s sell-off as gains on Wall Street and encouraging early corporate earnings results supported investor sentiment.
However, a sharp collapse in Australian data center operator NextDC underscored growing concerns about the artificial intelligence infrastructure boom’s capability to deliver returns commensurate with the capital being invested.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1%, led by a 3.3% gain in South Korean equities. Japan’s Nikkei 225 climbed 0.9%, while S&P 500 futures added 0.2%. The regional advance came as investors assessed corporate earnings, interest-rate expectations and escalating tensions in the Gulf that threatened to push oil prices higher.
Register for the next Tekedia Mini-MBA.
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Despite the recovery, Asian markets have struggled to establish a sustained upward trend since last week’s losses, trading within a relatively narrow range as investors weigh improving earnings against rising risks in parts of the technology sector.
Wall Street provided some support on Tuesday, with the S&P 500 gaining 0.3% as oil prices and US Treasury yields eased. According to LSEG data, 86% of the 13% of S&P 500 companies that had reported earnings had beaten analysts’ estimates, offering an early indication that corporate results could help sustain equity valuations.
Yet the strength of reported earnings has not eliminated concerns over the durability of the AI investment boom, particularly as spending on data centers, computing infrastructure and advanced chips continues to attract scrutiny.
“Under the hood there remains concerns around the sustainability of the AI trade,” MUFG analysts in Singapore wrote in a note. “Over here, you are seeing some signs that segments of the data Centre businesses are starting to see more risk premia priced in.”
NextDC Rout Exposes Growing Divide in AI Infrastructure
Australian data center operator NextDC lost nearly half its market capitalization on Wednesday after sharply cutting its revenue forecasts for the coming year and suspending future developments. The sell-off extended a wave of negative sentiment towards AI-related stocks, suggesting investors are becoming more selective about which infrastructure companies can translate demand for computing capacity into profitable growth.
The reaction underpins a distinction emerging across the AI industry. Demand for computing power may continue to expand, but that does not guarantee every company building or operating the infrastructure will generate attractive returns.
Data center operators face substantial upfront costs, including land acquisition, construction, power infrastructure, cooling systems, and equipment. Projects can also require lengthy development periods before generating revenue. If forecasts deteriorate or customers delay commitments, investors may reassess the value of planned capacity and the financing required to complete it.
NextDC’s decision to put future developments on hold raises questions about the assumptions underpinning its expansion plans and the pace at which anticipated demand can be converted into revenue. Its sharp share-price decline also illustrates how quickly investor confidence can deteriorate when growth expectations are revised downwards.
The episode comes as investors increasingly examine the economics of AI infrastructure rather than treating exposure to the sector as sufficient justification for high valuations. Companies must demonstrate that demand, pricing and utilization can support the cost of building and operating additional capacity.
The contrast was evident in South Korea, where shares in AI infrastructure company Elice Group surged almost 30% on Wednesday after falling sharply during their market debut a day earlier. The rebound followed a disappointing first session and highlighted the volatility surrounding newly listed companies linked to the AI investment cycle.
Meanwhile, shares in Japanese and Taiwanese suppliers to Tesla and SpaceX advanced after Elon Musk said on Tuesday that a merger of the two companies would be “a good idea”. The companies had formed special committees to discuss a potential combination, according to the report.
The gains suggest investors remain willing to pursue opportunities tied to prominent technology businesses, even as the NextDC sell-off signals a more demanding assessment of the financial prospects of infrastructure providers.
Jio IPO Draws Strong Demand as Global Rate Decisions Loom
India provided another source of positive market activity. Jio Platforms’ $3.2 billion initial public offering was fully subscribed in less than two hours of public bidding, as investors flocked to the country’s largest share sale and the first listing from billionaire Mukesh Ambani’s Reliance group in two decades.
The rapid subscription points to strong demand for the offering, although the pace of applications alone does not establish how the shares will perform after listing. The deal also comes at a time when investors are balancing opportunities in India’s domestic growth story against uncertainty over global interest rates, energy costs and equity valuations.
In Europe, French government bonds came under pressure as investors assessed the government’s response to planned protests. The yield on France’s 10-year government bond rose 4.7 basis points to 4.9605%, while the spread over comparable German government bonds widened 2.3 basis points to 154.7 basis points.
Prime Minister Sébastien Lecornu announced that the government would reinforce police with a “massive” deployment of troops to quell demonstrations planned for Saturday. The rise in French borrowing costs suggests investors remain sensitive to the country’s political tensions and their potential implications for public finances.
Energy markets presented a further challenge to the improving mood in equities. Brent crude rose 1.1% to $110 a barrel in Asian trading as escalating conflict in the Gulf fueled fears of supply disruptions.
Higher oil prices could complicate the outlook for inflation by increasing transport, manufacturing and energy costs. That could constrain central banks’ ability to ease monetary policy and place additional pressure on consumers and companies, particularly in energy-importing economies across Asia.
Investors were also watching diplomatic developments surrounding the war in Ukraine. US envoy Steve Witkoff was due to meet Russian President Vladimir Putin after what a US official described as “constructive” talks with Ukrainian President Volodymyr Zelenskiy in Norway. US President Donald Trump said it was time for Ukraine to end the war.
Central Banks Balance Inflation Risks Against Growth
Currency and bond markets remained sensitive to the outlook for monetary policy. The yen was little changed at 158.165 per dollar after Japanese data showed exports rose 16.7% year-on-year in September, missing expectations. Strong demand for semiconductors and AI-related products helped offset weakness in other sectors.
A Reuters poll found that most economists expected the Bank of Japan to leave interest rates unchanged at its October 30 meeting before raising them by 25 basis points in December, followed by quarterly increases. The forecast suggests policymakers may prefer to assess economic conditions before tightening further, despite strong export demand in some technology-related industries.
Indonesia’s central bank held its main interest rate steady for a fourth consecutive policy review. At the same time, it raised its deposit facility rate by 25 basis points and cut banks’ reserve requirement ratio by two percentage points to support liquidity and lending.
The adjustments came after markets were unsettled by an MSCI warning that Indonesian stocks could be excluded from major benchmarks. The episode illustrates how concerns over market accessibility and investability can affect investor confidence in emerging markets, even when monetary authorities take steps to support domestic financial conditions.
In the United States, economists polled by Reuters expected the Federal Reserve to leave rates unchanged at its next meeting on October 28 before increasing them in December. Fed funds futures indicated an 83% probability of a hold later in October, according to CME Group’s FedWatch tool.
The US 10-year Treasury yield rose one basis point to 5.123%, keeping borrowing costs elevated for companies dependent on external financing. That remains particularly relevant to capital-intensive technology businesses, where the economics of expansion depend partly on the cost of funding new infrastructure.
In digital assets, bitcoin was little changed at $82,757.36, while ether slipped 0.2% to $2,441.17.
Wednesday’s trading therefore presented a mixed picture. Strong early earnings and gains across major Asian markets supported a recovery from last week’s sell-off, while the NextDC rout exposed the risks facing parts of the AI infrastructure sector. With oil near $110 a barrel, bond yields elevated, and several central bank decisions approaching, investors still face competing signals about growth, inflation, and the sustainability of current market valuations.