Japan’s AI Stock Surge Sparks Investor Jitters and Profit-Taking

International investors are pulling back from Japanese equities, selling nearly $2.5 billion in shares during the week ending May 29, according to Bloomberg, citing Japan Exchange Group data. The sell-off comes as the Nikkei 225 breached 65,000 points for the first time, driven largely by AI-linked companies like SoftBank Group, Kioxia Holdings, and Murata Manufacturing. But the rapid ascent has some market participants worried about overheating, prompting them to lock in gains.

“There’s a growing sense that AI is turning into a bubble,” said Pelham Smithers, managing director at UK-based Pelham Smithers Associates. He estimates that about 70% of Japan’s stock market growth in 2026 will come from AI ecosystem firms. Smithers notes that global investors are becoming more cautious and looking to shift capital from Japan into less AI-saturated markets, such as Europe.

The International Monetary Fund has warned that the AI boom risks a spectacular collapse, fueled by overly optimistic expectations. The potential fallout could rival the dot-com crash of 2000-2001. For business leaders, the message is clear: while AI infrastructure and ML deployment remain transformative opportunities, the froth in public markets demands a sober, data-driven approach to investment and technology adoption.