Deepseek's AI disrupts markets as Nvidia shares tumble 10%
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, causing investor concerns about high valuations and costs in the AI sector.
On Monday, shares of companies related to artificial intelligence declined at major stock exchanges in the U.S. and Europe. Futures on American stock indexes are falling due to market fears that DeepSeek's artificial intelligence models could undermine the U.S.'s leading technological position.
DeepSeek more popular than ChatGPT
The chip producer Nvidia is down by 10% before the session due to potential threats to the demand for components used in AI technology. Major tech companies are also declining: Alphabet, Tesla, and Amazon are losing 3% in pre-market trading, Apple 1.5%, with Meta Platforms and Microsoft both down 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 each losing 11%. 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 uses cheaper chips and less data. This challengers the widespread belief in financial markets that artificial intelligence will drive demand throughout the supply chain, from chip makers to data centers.
The application from the Chinese startup DeepSeek surpassed ChatGPT on Monday, becoming the top-rated free app available in Apple's App Store in the U.S. The app is also among the most frequently downloaded in Google's Play Store.
The AI model by DeepSeek, founded by quantum fund head Liang Wenfeng, is considered competitive with the latest products from companies like OpenAI and Meta Platforms.
DeepSeek has sparked the prospect of disruptions in the technological company environment, and its emergence suggests China may continue making progress in the AI race despite U.S.-imposed restrictions. It seems to raise concerns about U.S. technological dominance, questioning the high valuations of tech companies again, 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 assess that in an inevitably more restrictive environment, the U.S.'s access to more advanced chipsets is an advantage," stated a Citigroup 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 seemingly prefer to sell first and then await the verdict.
Analysts point out that America created this challenge. Years of chip-related sanctions and renewed tariff threats under U.S. President Donald Trump have encouraged Beijing to pursue self-sufficiency.
China's strategic focus on AI is expected to yield results within the next two years, potentially reducing the development gap with the U.S., even with limitations in semiconductor supplies. According to Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu, the country's growing influence in AI highlights its strengths in software development, establishing it as a key competitor to the U.S.
"The US is great at research and innovation and especially breakthrough, but China is better at engineering. In this day and age, when you have limited compute power and money, you learn how to build things very efficiently," said computer scientist Kai-Fu Lee earlier this month at the Asian Financial Forum in Hong Kong.
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.
