This is by no means the end of the AI trade, but valuations had become stretched.
In the volatile rhythm of global markets, Tuesday brought a measure of restoration — Asian equities rebounded broadly after Monday's sharp AI-driven sell-off, steadied by Wall Street's recovery, a fragile ceasefire between Iran and Israel, and the consequent easing of oil prices. The moment captures something enduring about financial markets: that panic and reassurance are often separated by little more than a single day's news cycle, and that the human appetite for transformative technology — here, artificial intelligence — is not easily extinguished by a single disappointing earnings forecast. Yet beneath the relief, a deeper tension persists, as Wednesday's US inflation data looms over a world still negotiating the distance between economic strength and the cost of containing it.
- Monday's collapse was swift and severe — Seoul's Kospi shed over eight percent as a weak Broadcom forecast shattered confidence in the AI trade that had lifted markets to record highs.
- Geopolitical risk compounded the financial anxiety, with Iran and Israel exchanging strikes over the weekend and threatening to close the Strait of Hormuz, through which a fifth of the world's oil flows.
- By Tuesday the mood had reversed: Nasdaq's rebound pulled Asian indices higher, with Seoul recovering three percent and gains spreading from Taipei to Tokyo to Manila, suggesting Monday's rout was profit-taking rather than a structural break.
- The Iran-Israel ceasefire announcement drained urgency from the oil market, pulling West Texas Intermediate back toward $90 a barrel after a spike of more than five percent the day before.
- The recovery remains conditional — US CPI data expected at 4.2 percent on Wednesday could force the Federal Reserve's hand on interest rates, keeping the technology sector's stretched valuations in a precarious balance.
The selling on Monday had been swift and unsparing. Asian tech stocks collapsed in step with Wall Street after Broadcom's disappointing revenue forecast cast doubt on the entire artificial intelligence trade, sending Seoul's Kospi down more than eight percent and rattling markets from Tokyo to Taipei. The fear was simple but potent: that valuations had run too far ahead of reality, and that the AI rally was overdue for a reckoning.
By Tuesday, the reckoning looked more like a pause. Wall Street's Nasdaq and S&P 500 had bounced, and Asia followed — Seoul gaining over three percent, Taipei adding nearly two, with Tokyo, Shanghai, Singapore, Manila, and Wellington all moving higher. Analysts framed the recovery as healthy profit-taking after months of relentless momentum, not a fundamental break. The underlying thesis — that artificial intelligence would reshape corporate earnings — remained, in their view, intact.
Helping to steady nerves was an unexpected development in the Middle East. Iran and Israel announced a halt to hostilities after a weekend of escalating strikes, with Israeli Prime Minister Benjamin Netanyahu declaring the situation contained and Tehran confirming it had ceased military action. The ceasefire mattered to markets not only as a geopolitical signal but as a practical one: the threat to the Strait of Hormuz, through which roughly a fifth of global crude passes, had receded. Oil prices, which had spiked more than five percent on Monday, reversed course — West Texas Intermediate falling back toward $90 a barrel.
Still, the calm was conditional. A stronger-than-expected US jobs report for May, while a sign of economic resilience, had deepened fears that the Federal Reserve would be compelled to raise interest rates further to fight inflation already running hot. Wednesday's consumer price index reading — forecast at 4.2 percent, the highest in over three years — would likely determine whether Tuesday's relief held, or whether the tension between growth and monetary tightening would reassert itself.
The selling had been brutal. On Monday, Asian tech stocks collapsed in lockstep with their American counterparts, Seoul's Kospi plummeting more than eight percent as investors fled the artificial intelligence trade that had carried markets to record heights just weeks earlier. The trigger was straightforward enough: Broadcom, one of the world's largest chipmakers, had disappointed with its revenue forecast, and suddenly the entire sector looked overheated. Wall Street had already taken the hit on Friday. Now it was Asia's turn to reckon with the possibility that valuations had simply gotten too far ahead of reality.
But markets, it turned out, were not done with the AI story. By Tuesday, the mood had shifted. Wall Street's Nasdaq and S&P 500 had bounced back, and Asian investors followed suit. Seoul gained more than three percent. Taipei added nearly two percent. Tokyo, Shanghai, Singapore, Manila, and Wellington all moved higher. Hong Kong stayed flat; Sydney edged down. The rebound was not universal, but it was broad enough to suggest that Monday's panic had been something other than a fundamental reckoning—more like profit-taking, the kind of healthy pause that happens when a rally has run too far too fast.
Analysts were quick to frame the recovery in those terms. The selling, they argued, reflected nothing more than investors locking in gains after months of relentless upward momentum. Fiona Cincotta at City Index captured the mood: the questions raised about the pace of the AI sector's advance were real, and valuations in parts of the market had indeed become stretched. But this was not the end of the trade. It was a correction, not a collapse. The underlying thesis—that artificial intelligence would reshape corporate earnings and drive growth—remained intact.
What helped steady nerves was news from the Middle East. On Monday, Iran and Israel announced they had halted hostilities after a weekend of escalating strikes. Israeli Prime Minister Benjamin Netanyahu declared that "the fire on that front is contained." Tehran confirmed it had stopped its military action. The sequence had been tense: Iran had launched missiles at Israel on Sunday in response to Israel's ongoing campaign against Hezbollah in Lebanon. Israel struck back despite efforts by President Donald Trump to prevent escalation. Iran fired again. Then, abruptly, the cycle stopped.
The stakes had been high. A full-scale conflict threatened to unravel a truce between Iran and Israel that had held since April 8, and more immediately, it risked disrupting efforts to reopen the Strait of Hormuz—the waterway through which roughly one-fifth of the world's crude oil passes. Oil prices had spiked more than five percent early Monday on those fears. By Tuesday, with the ceasefire holding, they had reversed course. West Texas Intermediate fell 0.4 percent to $90.39 a barrel. Brent North Sea Crude dropped 0.3 percent to $93.98. The relief was palpable.
Yet the broader economic picture remained complicated. The US economy had created more than double the number of jobs expected in May, a sign of underlying strength that should have pleased investors. Instead, it created a dilemma. A robust labor market meant the Federal Reserve would face pressure to raise interest rates to combat inflation, which was already running hot. That prospect had triggered the initial sell-off. Now, with stocks recovering and geopolitical tensions easing, the focus shifted to what came next: the release of US inflation data on Wednesday. The consumer price index was expected to hit 4.2 percent, the highest in more than three years. That number would likely shape the Fed's thinking about monetary policy in the months ahead, and by extension, it would shape how investors thought about the value of stocks, especially in the technology sector where growth assumptions matter most.
Notable Quotes
The selling was largely driven by profit-taking and could be seen as a healthy pause in a rally that has run since March.— Market analysts
The fire on that front is contained.— Israeli Prime Minister Benjamin Netanyahu
The Hearth Conversation Another angle on the story
Why did Asian stocks fall so hard on Monday if the AI story was still intact?
Because Broadcom's weak guidance made investors suddenly question whether they'd been paying too much for the promise of AI. When one of the biggest chip suppliers disappoints, it ripples through the entire sector. People panic and sell first, ask questions later.
But they came back on Tuesday. What changed?
Wall Street bounced first, and Asia followed. But more importantly, investors had time to think. They realized Monday was panic, not prophecy. The AI trade is still real. Valuations just got ahead of themselves, which happens in every bull market.
And the Middle East ceasefire—how much did that actually matter?
It mattered because oil prices had spiked on war fears. A fifth of global crude flows through the Strait of Hormuz. If that gets cut off, everything gets more expensive. The ceasefire removed that tail risk, which calmed markets and brought oil back down.
So the real question now is inflation?
Exactly. The Fed is caught between a strong job market and rising prices. If inflation stays high, they have to raise rates, which makes stocks less attractive. If they don't raise rates, inflation keeps running. That Wednesday inflation number will tell us which way they're leaning.
Is this recovery sustainable?
That depends on whether the AI sector's valuations actually reset to something reasonable, and whether the Fed can thread the needle on rates. Right now, both are open questions.