Two crises collided on Monday: one in the Middle East, one in the technology sector, and together, they sent global markets into a tailspin.
Stock markets across Asia-Pacific plunged overnight, with South Korea’s KOSPI index falling almost 9% at one point — forcing trading to be briefly suspended. Japan’s Nikkei 225 dropped 3.8%. Europe’s Stoxx 600 hit a two-week low. US futures pointed to more losses when Wall Street opens.
The trigger? A surprise Israeli strike on Iran over the weekend, followed by Iranian retaliation. Oil prices spiked above $98 a barrel, a 5% jump from Friday’s close. Investors fear the conflict could escalate further, choking global energy supplies and reigniting inflation.
At the same time, the artificial intelligence boom that has powered markets for two years showed signs of faltering. Technology stocks have been pummeled on fears that the AI race is turning into a battle over who can raise — and spend — the most money, with ChatGPT developer OpenAI and Anthropic both preparing to float on the stock market.
“Things could get a bit hairier today,” said Kyle Rodda, senior financial market analyst at Capital.com, before the markets opened. He was right.
The Middle East Flashpoint
The latest escalation began when Israel struck Iranian targets over the weekend, prompting Iranian retaliation. Reports of explosions in central Tehran on Monday morning pushed oil prices higher and sent investors scrambling for safe havens.
Israel’s military said dozens of air force fighter jets had “completed an extensive strike” on “strategic defence systems” in Iran. The full extent of the damage is unclear. What is clear is that peace talks between the US and Iran have stalled, and both sides appear emboldened.
Brent crude hit $98 a barrel on Monday morning, up from $93.08 on Friday. If oil breaks through $100 — and many analysts expect it will — the impact on global inflation and consumer spending could be severe.
The AI Reckoning
The sell-off in technology stocks began on Friday, triggered by a surprisingly strong US employment report. That report left many traders concluding that the Federal Reserve’s next move on interest rates will be up, not down — a reversal of expectations that had fueled the tech rally.
But the deeper issue, analysts say, is that AI stocks had become too crowded. “Semiconductors and AI-linked names had become the default long trade,” said Charu Chanana, chief investment strategist at Saxo. “When everyone owns the same winners, even a small disappointment can lead to a much bigger unwind.”
Investors are now asking hard questions about AI spending. Alphabet’s funding moves, and now Meta’s, are reminders that the next leg of AI infrastructure requires serious money. Concerns are growing about who funds that buildout, whether capital expenditure remains disciplined, and whether returns can justify the spending.
Nvidia CEO Jensen Huang, whose company has been the biggest winner of the AI boom, called the sell-off a buying opportunity. “We’re at the beginning of it,” Huang said from Seoul. “Whatever happened to the stock market, you should be very happy because now you can buy at a discount.”
The UK and European Fallout
The FTSE 100 initially fell but pushed into positive territory by mid-morning, rising 0.2% to 10,390 points. Defense contractor BAE Systems was among the top risers, gaining 1.45% as tensions escalated.
But elsewhere in Europe, the picture was darker. The Stoxx 600 dropped to a two-week low. German factory orders and US inflation expectations are due later Monday, and traders are bracing for more bad news.
In corporate news, UK ingredients developer Tate & Lyle agreed to be bought by US rival Ingredion in a £2.7 billion deal, sending its shares up 12%. Once famous for sugar refining, Tate & Lyle now makes sweeteners, fibers, and stabilizers — a business that has struggled with weak share price performance and disappointing financial results, leaving it vulnerable to a takeover.
Shares in Danish drugmaker Zealand Pharma fell 25% after trial data showed its injectable obesity drug had worse side effects and higher patient dropout rates than rival treatments.
The Bottom Line
Global stock markets fell sharply on Monday as escalating Middle East conflict and a sell-off in AI stocks rattled investors. South Korea’s KOSPI plunged nearly 9%, forcing a trading halt. Japan’s Nikkei dropped 3.8%. Oil jumped to $98 a barrel after reports of explosions in Tehran. Technology stocks have been pummeled on fears that AI spending is unsustainable and that interest rates may rise further.
Nvidia’s CEO called the sell-off a buying opportunity. Analysts warned that crowded positioning in AI stocks could lead to more pain. And with Middle East tensions showing no sign of easing, the only certainty is more volatility.
