Nvidia hit as Deepseek's AI disrupts tech market stability
Nvidia shares fell by 10% before the market opened, and the Nasdaq technology index lost 3.5%. This occurred after the Chinese company DeepSeek unveiled a new AI model, which caused investors to worry about high valuations and expenses in the AI sector.
On Monday, shares of companies associated with artificial intelligence declined on major US and European stock exchanges. US stock index futures are slipping due to market concerns that DeepSeek's AI models could challenge the US's leading technological status.
DeepSeek more popular than ChatGPT
The chip manufacturer Nvidia is down by 10% before the market opened, due to potential threats to the demand for components used in AI technology. Major tech companies are also declining: Alphabet, Tesla, and Amazon are down 3% in pre-market trading; Apple is down 1.5%, and Meta Platforms and Microsoft are down 3.5%. Shares of companies linked to artificial intelligence, including Super Micro Computer, down 8.5%, C3.ai, down 5%, Palantir, down 5.5%, and SoundHound AI, down 7.5%, are also decreasing.
The Nasdaq technology index has dropped by 3.5%, and the S&P 500 has fallen by 2%. If the losses in the IT sector continue, they could reduce the market capitalisation by one trillion dollars.
ASML and ASM International are leading declines among semiconductor companies on European stock exchanges, with Siemens Energy also experiencing a downturn.
ASML has dropped by 10% to its lowest level since November, while both ASM and BE Semiconductor have lost 11%. Siemens Energy is down 20%, Munters 14%, Legrand 9%, VAT 10%, Schneider Electric 8%, ABB 6%, Prysmian 8%, Soitec 7%, and Comet 8%.
The Chinese start-up DeepSeek has launched a free AI assistant that claims to use more affordable chips and less data, challenging the widespread belief in financial markets that AI will boost demand throughout the supply chain from chip makers to data centres.
On Monday, the app from the Chinese start-up DeepSeek surpassed its competitor ChatGPT to become the top-rated free app on Apple's App Store in the US. It is also among the most downloaded apps on Google's Play Store.
The AI model by DeepSeek, founded by quantum fund chief Liang Wenfengaa, is seen as competitive with the latest offerings from companies like OpenAI and Meta Platforms.
DeepSeek is causing potential disruptions in the technology company landscape, suggesting that China may continue advancing in the AI race despite US-imposed restrictions. This development raises questions about US technological supremacy, once again challenging the high valuations of tech companies - wrote Yeap Jun Rong, a strategist at IG, in a report.
"The dominance of American companies in the most advanced AI models could potentially be challenged. However, we believe that in an inevitably more restrictive environment, the US's access to more advanced chipsets remains an advantage," stated a Citigroup report.
The initial success contradicts market and expert expectations that the most advanced AI would require increasing computing power and energy usage. This assumption drove Nvidia's and its suppliers' shares to record levels.
It remains unclear how significant a threat the DeepSeek app might pose to American competitors, but analysts suggest that market investors seem inclined to sell first and obtain clarity later.
Analysts highlight that this challenge is partly an outcome of America's own actions, following years of chip-related sanctions and recent tariff threats under US President Donald Trump, which have motivated Beijing towards self-sufficiency.
- China's strategic ambitions in AI should continue to produce results over the next two years, and the country may further reduce the development gap with the US, despite hurdles in semiconductor supplies. China's emerging AI capability is a testament to their software development strength, positioning them as a leading competitor to the US - said Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu.
The US excels at research and innovation, especially breakthroughs, but China is superior at engineering. With limited computing power and funding today, it's crucial to learn efficient project creation, computer scientist Kai-Fu Lee said earlier this month at the Asian Financial Forum in Hong Kong.
Trump has yet to address this potential threat to his $500 billion AI initiative.
The developments with DeepSeek may draw more attention than usual to the quarterly financial reports of major tech companies this week. Four companies from the so-called "Magnificent Seven" are scheduled to release their financial results this week – these are Apple, Microsoft, Meta Platforms, and Tesla.
