Market Turmoil: Tech Stocks Plummet as AI Startup DeepSeek Disrupts the Status Quo
The US stock market is bracing for a sharp decline, led by a steep drop in technology shares, as the sudden rise of Chinese startup DeepSeek’s low-cost artificial intelligence model raises questions about the sector’s lofty valuations.
A Shift in the AI Landscape
DeepSeek, which has surpassed rival ChatGPT to become the top-rated free application on Apple’s App Store in the US, claims to use lower-cost chips and less data, challenging the widespread assumption that AI will drive demand along a supply chain from chipmakers to data centers.
Global Equities in Free Fall
As a result, global equities are tumbling, prompting a widespread flight to safety. US government bonds are rising, and safe-haven currencies such as the yen and Swiss franc are surging. Futures on the tech-heavy Nasdaq 100 have plummeted 3.5%, while S&P 500 futures have declined 2.1%.
Fear Gauge Hits Highest Level Since December
The CBOE Volatility Index, also known as Wall Street’s “fear gauge,” has hit its highest level since December 20, rising 6.3 points to 21.19. Shares of AI-bellwether Nvidia, which have risen over 800% since the start of 2023, have fallen more than 11% in pre-market trade.
European Markets Follow Suit
In Europe, the technology sector is leading the pan-European STOXX 600 index 0.4% lower, while the blue-chip Euro STOXX 50 has dropped 1%. The STOXX Europe 600 technology index has fallen 4.4%, its biggest one-day drop since mid-October.
Investors Take Profit Amid Frothy Market
“It makes sense that markets question the narrative that has been underpinning the whole market,” said George Lagarias, investment strategist at Forvis Mazars. “It’s a very frothy market, so it doesn’t really take that much for investors to take some profit.”
Risk-Averse Moves Across Asset Classes
The decline in global equity markets has driven risk-averse moves across other asset classes. The benchmark US 10-year yield has dropped 8.5 basis points to 4.54%, pushing the dollar lower. Safe-haven currencies have been the main beneficiaries.
Dollar Slumps Against Yen and Swiss Franc
“Haven demand has spilled over into FX,” said Shaun Osborne, chief FX strategist at Scotiabank. “Part of the dollar’s slippage can be accounted for by the sharp fall in bond yields.” The dollar has fallen 1.2% against the yen and 0.9% against the Swiss franc.
Busy Week Ahead for Central Banks
Monday’s market volatility kicks off a busy week in which both the Federal Reserve and the European Central Bank meet to set interest rates. In commodities, crude oil futures have slipped after Trump called on Friday for OPEC to cut oil prices.
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