Japan's Nikkei drops 3% as Democratic gains in US midterms hit AI stocks

By Junko Fujita

TOKYO, Nov 4 (Reuters) - Japan's Nikkei average slumped on Wednesday as AI-related stocks slid on concerns that Democratic gains in the US midterm elections could lead to stricter rules for data-centre projects and slower AI infrastructure spending.

The Nikkei .N225 was down 3.1% at 61,127.9, as of 0150 GMT, while the broader Topix .TOPX fell 1.85% to 3.857.97.

The outcome of the US elections could have broad implications for market-sensitive areas, including the AI dead-centre buildout, the US fiscal outlook, defence spending and regulation in areas such as healthcare, banking and cryptocurrencies.

"Democrats are winning seats in some key states. That fuelled caution for stricter regulations on AI infrastructure investment," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

In Japan, shares of chip-testing equipment maker Advantest 6857.T and Tokyo Electron 8035.T fell 6.4% and 5%, respectively, while technology investor SoftBank Group 9984.T slipped roughly 7%, as investors sold AI-linked stocks.

Memory chip maker Kioxia 285A.T was down 10%.

Makers of fibre-optic cables, key materials for data centres, also fell, with Fujikura 5803.T and Furukawa Electric 5801.T down 8.2% and 9%, respectively.

Prediction markets signalled growing expectations of a Democratic sweep of the US Congress, with more than $1.48 billion wagered on the midterm elections.

Of the 225 components in the Nikkei, 130 fell while 95 rose.