Global Markets in Turmoil as AI Rivalry Heats Up
China’s DeepSeek Shakes Up the Tech Industry
The artificial intelligence (AI) frenzy that has driven Wall Street’s winners to new heights is facing a significant threat from a Chinese competitor, sending shockwaves through global financial markets. The S&P 500 plummeted 1.6% in morning trading, with Big Tech stocks bearing the brunt of the losses. Nvidia’s shares tumbled 11.2%, dragging the Nasdaq composite down 2.7%.
A New Player in Town
DeepSeek, a Chinese company, has developed a large language model that can rival its U.S. counterparts at a fraction of the cost. Its app has already topped Apple’s App Store chart, a remarkable feat considering the U.S. government’s restrictions on Chinese access to top AI chips.
Skepticism Abounds
While DeepSeek’s announcement has sent ripples through the market, analysts remain skeptical about the company’s ability to circumvent chip restrictions and the potential impact on the AI supply chain. “It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used,” said Dan Ives, an analyst with Wedbush Securities.
Global Markets Feel the Heat
The news has had far-reaching consequences, with stock markets worldwide feeling the pinch. In Amsterdam, Dutch chip supplier ASML slid 8.5%, while in Tokyo, Japan’s Softbank Group Corp. lost 8.3%. On Wall Street, shares of Constellation Energy sank 17.5%, as investors worried about the company’s plans to supply power to Microsoft’s data centers.
Investors Seek Safe Havens
As nervousness among investors grows, they are flocking to bonds, which are seen as safer investments than stocks. This has sent the yield of the 10-year Treasury down to 4.54% from 4.62% late Friday.
A Sharp Reversal for AI Winners
The AI winners, which had soared in recent years on hopes of a global economic transformation, are now facing a sharp reversal. Nvidia’s stock, for example, had risen from less than $20 to over $140 in less than two years before Monday’s drop.
Global Economic Implications
The Federal Reserve holds its latest policy meeting later this week, and traders don’t expect recent weak data to push the Fed to cut its main interest rate. However, the ongoing AI rivalry and its impact on global markets will be closely watched. As the world grapples with the implications of this new development, one thing is clear: the AI landscape is changing, and fast.
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