Japan's Nikkei slides as AI capex caution weighs on chip shares

TOKYO, Oct 22 (Reuters) - Japan's Nikkei share average tumbled on Thursday as chip-sector shares slumped with investors turning increasingly cautious about the outlook for AI-related spending.

The tech-heavy Nikkei .N225 fell 2.7% to close at 62,907.84, undoing all of Wednesday's 0.9% rally.

The broader Topix .TOPX slipped 1.1%, following the previous day's 0.9% advance.

Despite overall solid results, shares of US chip equipment maker Lam Research declined in extended trading, with Iwai Cosmo Securities analyst Kazuyoshi Saito pointing to worries about demand from China.

"In China, there was a rush to procure manufacturing equipment ahead of schedule amid concerns over tighter regulations, and the market seems not to have fully priced in the subsequent payback," he said.

Japanese stocks had already reacted to Tuesday's strong after-market earnings reports from US companies SpaceX SPCX.O and Super Micro Computer SMCI.O, making them vulnerable to profit-taking in the latest session, said Wataru Akiyama, an equities strategist at Nomura Securities.

"The market is looking out to 2027 and if AI capex will continue, and there's quite a lot of caution among investors," he said.

Chip-sector shares led the Nikkei lower, with Advantest 6857.T dropping 6% and Tokyo Electron 8035.T down 7%.

Data-centre cable maker Fujikura 5803.T lost 6.2%. AI-focused startup investor SoftBank Group 9984.T skidded 6.9%.

Some tech names advanced, however. Cybersecurity firm Trend Micro 4704.T jumped 8.7% to be the Nikkei's biggest percentage gainer following the announcement of critical vulnerabilities in the PHP programming language, which spurred several European governments to take their websites offline to protect systems.

IT services provider SHIFT 3697.T rose 8.6%, while IT consultancy BayCurrent 6532.T added 3.8%.