Tech Stocks Tumble as Chinese Startup Shakes Up AI Landscape
The stock market is reeling after a Chinese startup, DeepSeek, made a bold claim that its AI assistant can perform just as well as leading models, but with cheaper chips and less data. This revelation has sent shockwaves through the tech industry, causing investors to reassess their bets on AI-driven growth.
Nvidia Takes a Hit
Nvidia, a bellwether for AI stocks, saw its shares plummet over 11% in pre-market trading. The chip-related names also took a beating, with ASML losing 9%, and Arm, Broadcom, and Micron Technology following suit. The sell-off was not limited to chipmakers, as Meta and Microsoft shares slid about 6% amid concerns about their hefty investments in AI.
Tech Earnings Season Kicks Off
This week, the tech industry will be under scrutiny as Big Tech earnings season gets underway. Apple, Tesla, Meta, and Microsoft are set to release their results, and investors will be closely watching for guidance on future profits. The DeepSeek controversy has cast a shadow over the sector, and investors are anxious to see how these companies will respond.
Safe-Haven Assets Gain Traction
As stocks plummeted, investors flocked to safe-haven assets. The 10-year Treasury yield fell to its lowest level in over a month, while the yen and Swiss franc surged. This flight to safety is a clear indication of the market’s unease.
Trade War Concerns Resurface
In the background, trade war concerns have resurfaced after a face-off between President Donald Trump and Colombia over the weekend. Trump’s threat to impose tariffs on Colombian goods has raised concerns that he may use tariffs to push through policy aims, posing challenges to the Federal Reserve.
Federal Reserve Meeting Looms
The Federal Reserve will hold its first policy meeting of 2025 this week, and officials are already on high alert for any sudden moves by Trump that could impact monetary policy. The president has called for lower interest rates, setting the stage for a potential clash with policymakers.
A Reality Check
While the market’s reaction to DeepSeek’s claims may seem extreme, it’s essential to take a step back and assess the situation. Can Meta really reverse its billions of dollars invested in AI infrastructure powered by Nvidia chips? And can we trust DeepSeek’s claims? The demand backdrop for Nvidia is unlikely to change significantly, and investors should approach this news with a critical eye.
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