Deepseek stirs market unrest: Nvidia nosedives, big tech rattled
Nvidia shares fell by 10% before the session, and the Nasdaq technology index lost 3.5% after the Chinese company DeepSeek released a new AI model. This caused investor concerns about high valuations and costs in the AI company sector.
On Monday, shares of companies related to artificial intelligence declined at significant stock exchanges in the United States and Europe. Futures for American stock indexes are falling due to market fears that DeepSeek's artificial intelligence models could undermine the US's leading technological position.
DeepSeek more popular than ChatGPT
The chip producer Nvidia was down by 10% before the session due to potential threats to the demand for technology components using AI. Big Tech companies are declining: Alphabet, Tesla, and Amazon are losing 3% in pre-market trading, Apple 1.5%, Meta Platforms and Microsoft 3.5%. Shares of companies linked to artificial intelligence, including Super Micro Computer at 8.5%, C3.ai at 5%, Palantir at 5.5%, and SoundHound AI at 7.5%, are also falling.
The Nasdaq technology index is down 3.5%, and the S&P 500 is down 2%. If the losses in the IT sector persist, they could cause a one-trillion-dollar drop in capitalization.
ASML and ASM International are leading declines on European stock exchanges among semiconductor companies, with Siemens Energy also decreasing.
ASML is down by 10%, reaching the lowest level since November, while ASM and BE Semiconductor are losing 11% each. Siemens Energy is down 20%, Munters is down 14%, Legrand is down 8.5%, VAT 9.5%, Schneider Electric 8%, ABB 6%, Prysmian 8%, Soitec 7%, and Comet 8%.
The Chinese startup DeepSeek has released a free AI assistant that the company claims uses cheaper chips and less data. This challenges the widespread belief in financial markets that artificial intelligence will drive demand throughout the supply chain, from chip makers to data centres.
On Monday, the Chinese startup DeepSeek's application outpaced the competitive ChatGPT and became the top-rated free app in Apple's App Store in the USA. It is also one of the most frequently downloaded apps in Google's Play Store.
The AI model by DeepSeek, founded by quantum fund head Liang Wenfengaa, is considered competitive with the latest products from companies like OpenAI and Meta Platforms.
DeepSeek has introduced the potential for significant shifts within the technological industry. Its arrival indicates that China might continue advancing in the AI race despite US restrictions, potentially challenging the perception of US technological dominance and casting doubt on the high valuations of tech companies, according to a report by Yeap Jun Rong, a strategist at IG.
"While the dominance of the US companies on the most advanced AI models could be potentially challenged... we estimate that in an inevitably more restrictive environment, US' access to more advanced chips is an advantage," stated Citigroup in a report.
The initial success counters market and expert expectations that the most advanced AI will require increasing computing power and energy consumption. This assumption propelled the shares of Nvidia and its suppliers to record levels.
It is unclear how big a threat the DeepSeek application may pose to American rivals, but according to analysts, market investors seem to prefer to sell first and then wait to hear the verdict.
Analysts point out that America created this challenge. Years of chip-related sanctions and renewed tariff threats under US President Donald Trump have encouraged Beijing to pursue self-sufficiency.
China's strategic ambitions in the AI field should continue to bear fruit over the next 24 months, and the country may further narrow the development gap relative to the USA despite bottlenecks in semiconductor supplies. China's emerging AI power is evidence of its strength in software development, positioning the country as a leading competitor for the USA, said Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu.
The USA excels at research and innovation, especially breakthroughs, but China excels at engineering. With limited computing power and funding, computer scientist Kai-Fu Lee said earlier this month at the Asian Financial Forum in Hong Kong that learning how to create projects more efficiently is essential.
Trump has yet to address this potential threat to his own $500 billion AI initiative.
Information regarding DeepSeek may also attract more attention than usual to the quarterly financial reports of Big Tech companies this week. Four companies from the so-called "Magnificent Seven" will publish financial results this week: Apple, Microsoft, Meta Platforms, and Tesla.
