Global investors are bracing for a battle between long and short-term wins amid a dramatic sell-off in artificial intelligence-related stocks. 

AI darling Nvidia buoyed an otherwise deflated market when it reported strong earnings after the bell on Wednesday, sending its own stock soaring and carrying related names alongside it. However, the rally quickly reversed on Thursday with Nvidia ultimately ending the trading session 3% lower.  

While the U.S. chipmaker’s earnings initially appeared strong enough to quell concerns over an AI bubble, economic speculation put global investors back on the defensive as hopes dimmed of a December rate cut by the Federal Reserve. The U.K.’s hotly anticipated Autumn Budget is also expected next week.  

Asia-Pacific markets fell Friday, led by tech heavyweight SoftBank, which plunged more than 10%. European stocks followed suit with a negative open. Stateside, however, appetite may have already reversed – again – as futures rose.  

“I think the market is quite confused as to why this is happening,” Ozan Ozkural, founding managing partner at Tanto Capital Partners, told CNBC’s “Squawk Box Europe” on Friday.  

Market moves this year have been driven by sentiment, momentum, AI and innovation, “with sprinkles of geopolitical risk,” he said. “Although we haven’t got a specific reason why there has been a sell-off on the back of the strong Nvidia results, to me it’s not that surprising, because [it’s] only a matter of time until sentiment just shifts, because we just live in a much more uncertain world.” 

There also doesn’t need to be a catalyst, he added. However, the “most dangerous place we can be at” is a sustained sell-off, even if it’s a slow burn, Ozkural warning, noting that this could lead portfolio managers to lock in gains and cash out.  

Asset managers are driven by compensation cycles which is why they don’t like to hedge their bets, he said. “No one cares about the long term. Everyone is dead in the long term. No one even cares about the medium term. It’s all about short term cycles,” he said.  

“But the reality is, it’s year end, people need to get paid their bonuses, and it doesn’t pay to be bearish unless we see a sustained level of a sell-off.”  

Investors with cash in an AI ETF or index may be cashing out due to a mixture of year-end risk management and continued concerns over an AI bubble. Those who may have made a lot of money on the back of the AI trade will probably want to step back and sell, said Stephen Yiu, investment chief at Blue Whale Growth Fund, which has a position in Nvidia.  

However, for Julius Bendikas, European head of macro and dynamic asset allocation at Mercer, “it’s the battle between the solid fundamentals and questions being raised about multiples and maybe positioning getting a touch stretched.”

Despite solid fundamentals and earnings exceeding expectations, Bendikas told CNBC’s “Europe Early Edition” that investors are now starting to question whether the price is right and have started to sell as a result.

On technicals, “arguably, a lot of people have rushed into equities,” he said, noting that a recent Bank of America survey found cash levels are low. “So people have been quite long equities, maybe too long equities. And I think what we’ve seen yesterday is the valuations and technicals [narrative] overpowering the fundamental narrative, which came in quite strong post the Nvidia earnings overnight, a day ago.”

Nick Patience, AI lead at The Futurum Group, added: “Investors are also concerned about the circular nature of deals between Nvidia and other ecosystem players, questioning whether massive capital expenditures from hyperscaler customers represent sustainable demand.”

Foxconn showcased its push into artificial intelligence at its annual ‘Hon Hai Tech Day’ in Taiwan on Friday, underscoring the world’s largest contract manufacturer’s efforts to evolve beyond its role as the biggest assembler of Apple’s iPhones. 

The company, officially known as Hon Hai Precision Industry Co., has also become a major player in the AI hardware space, with its event taking place the same day it announced a partnership with ChatGPT maker OpenAI. 

OpenAI CEO Sam Altman, in a video statement streamed at the event, said that the two firms would “share insight into emerging hardware needs across the AI industry.”

He added that Foxconn would use those insights to design and prototype new equipment that could be manufactured in the United States.

The partnership will center on Foxconn’s server business, which earlier this year became its largest revenue driver and helped drive record profit in the September quarter.

Describing Foxconn and OpenAI as “natural partners,” Kirk Yang, an adjunct finance professor at National Taiwan University, told CNBC, “OpenAI needs strong partners, not only to manufacture products, but to quickly introduce all the products to the market.”

“So I think it makes perfect sense for OpenAI to work with Foxconn. And Foxconn is probably the strongest partner that open AI can find,” he added.

Foxconn also announced a partnership with Intrinsic, a unit of Alphabet to build so-called “artificial intelligence factories.” 

The Taiwanese manufacturer highlighted deeper work with Nvidia as well, showcasing its compute trays for the chip designer’s cutting-edge Blackwell chips.

Speaking at the Friday event, Alexis Bjorlin, vice president and general manager of Nvidia’s DGX Cloud unit, said the partners would work on deploying advanced AI infrastructure much faster to meet customer demand.

AI hardware orders have surged this year, with Nvidia beating third-quarter expectations on Wednesday and providing a strong forecast for the current quarter.

Despite Nvidia’s results showing that demand for AI hardware remains strong, concerns persist in the market about a potential AI bubble and the sustainability of heavy AI spending. 

Speaking to CNBC’s Emily Chan on the sidelines of Hon Hai Tech Day, Foxconn Chairman Young Liu expressed confidence that the company would be protected from a potential AI bubble.

“No matter what [AI] models or [AI] model players will win, they all need hardware, and no matter what GPU player will win, they all need system and component suppliers to support them,” he said.

— CNBC’s Emily Chan contributed to this report

A sector-wide pullback hit Asian chip stocks Friday, led by a steep decline in SoftBank, after Nvidia‘s sharp drop overnight defied its stronger-than-expected earnings and bullish outlook.

SoftBank plunged more than 10% in Tokyo. The Japanese tech conglomerate recently offloaded its Nvidia shares but still controls British semiconductor company Arm, which supplies Nvidia with chip architecture and designs.

SoftBank is also involved in a number of AI ventures that use Nvidia’s technology, including the $500 billion Stargate project for data centers in the U.S.

South Korea’s SK Hynix fell nearly 10%. The memory chip maker is Nvidia’s top supplier of high-bandwidth memory used in AI applications. Samsung Electronics, a rival that also supplies Nvidia with memory, fell over 5%. 

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker and manufacturer of Nvidia’s chip designs, was down over 4% in Taipei. 

Taiwan’s Hon Hai Precision Industry, also known as Foxconn, which manufactures server racks designed for AI workloads, dipped 4%.

The retreat in major Asian semiconductor giants comes after Nvidia fell over 3% in the U.S. on Thursday, despite beating Wall Street expectations in its third-quarter earnings the night before. 

The company also provided stronger-than-expected fourth-quarter sales guidance, which analysts said could lift earnings expectations across the sector. 

However, smaller chip players in Asia were not spared either.

In Tokyo, Renesas Electronics, a key Nvidia supplier, fell 2.3%. Tokyo Electron, which provides essential chipmaking equipment to foundries that manufacture Nvidia’s chips, was down 5.32%. 

Another Japanese chip equipment maker, Lasertec, was down over 3.5%.