AI Revolution Sparks Global Market Shift
A groundbreaking AI model from Chinese startup DeepSeek has sent shockwaves through the global tech industry, sparking a $1 trillion rout in US and European technology stocks. The sudden shift has investors reevaluating the valuations of America’s biggest companies and questioning the massive investments in AI technology.
A New Era of AI Competition
DeepSeek’s latest AI model has risen to the top of Apple’s app store charts, presenting a visible challenge to costlier models like OpenAI. This development raises questions about the hundreds of billions of dollars in planned spending on AI technology by companies like Microsoft, Meta Platforms, and Alphabet.
Nvidia’s Dominance Challenged
The sudden surge in DeepSeek’s popularity has put a spotlight on AI chip producer Nvidia Corp., whose shares have soared ninefold in the past two years, making it the highest-valued company in the world. However, Nvidia’s shares slid more than 10% in premarket trading, wiping out $340 billion in market value.
Global Markets React
The Nasdaq 100 futures tumbled as much as 5.2% in overnight trading, marking the biggest intraday drop since August. In Europe, tech stocks led market losses, with shares of chip equipment maker ASML Holding NV down as much as 12%. The Cboe Volatility Index surged to 21.5, indicating heightened market uncertainty.
A Shift in AI Investment
DeepSeek’s model shows that powerful AI can be developed at a lower cost, potentially derailing the investment case for the entire AI supply chain. This could have significant implications for companies like Microsoft, Meta Platforms, and Alphabet, which have invested heavily in AI technology.
Earnings Season Looms
The rout in Nasdaq futures comes at the start of a big week for earnings from major tech companies, including Apple and Microsoft. Profit growth is expected to have slowed, while valuations remain inflated, causing concern over the large AI-driven rally in the sector.
Chinese AI Stocks Surge
Chinese AI-related stocks reacted positively to the news, with mainland-listed Merit Interactive Co. surging by its daily limits. The Hang Seng Tech Index climbed as much as 2% ahead of Lunar New Year holidays this week.
A New Era of Competition
The emergence of DeepSeek indicates that competition in the AI sector is intensifying, and although it may not pose a significant threat now, future competitors will evolve faster and challenge established companies more quickly. Earnings this week will be a huge test for the tech industry.
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