Tech Stocks Take a Hit as AI Model Challenges Industry Giants
The tech sector is reeling after a Chinese startup, DeepSeek, unveiled a free artificial intelligence model that uses lower-cost chips and less data, casting doubt on the profitability of AI and the industry’s voracious demand for high-tech chips.
Nasdaq Futures Plummet
Nasdaq 100 futures slumped 2.6% and S&P 500 futures slipped 1.4% by the European morning, as investors began to question the capex spend of major tech companies. Shares in Nvidia supplier Advantest fell 8.5% in Tokyo, while Frankfurt-listed shares of Nvidia slipped about 7%.
Tesla, Meta, and SoftBank Feel the Pinch
Tesla, Meta, and SoftBank Group, an AI-focused startup investor, saw their shares fall more than 2% in early European trading. SoftBank Group, which recently announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI, slid more than 8%, on course for its biggest one-day fall since September 30.
DeepSeek’s AI Model Raises Questions
Little is known about the small Hangzhou startup behind DeepSeek, but its assistant has leapfrogged rival ChatGPT to become the top-rated free application on Apple’s App Store in the United States. DeepSeek researchers claim that their model, launched on January 10, used Nvidia’s H800 chips for training, spending less than $6 million.
Chip-Making Equipment Giant Takes a Hit
Tokyo Electron, a chip-making equipment giant, fell 5% as investors worried about the impact of DeepSeek’s model on the industry. European tech stocks, especially Dutch computer chip equipment maker ASML, which counts Taiwan’s TSMC, Intel, and Samsung as its customers, will likely face pressure at the open.
Nvidia’s Rise Under Threat
Shares of Nvidia, the poster child of AI, have risen 196% since the start of 2024, outperforming the 35% gain in the Nasdaq. However, with DeepSeek’s model challenging the industry giants, Nvidia’s rise may be under threat.
Data Centres and Related Companies Feel the Heat
Besides chips, data centres and related companies also took a hit on Monday, with Malaysia’s utility conglomerate YTL Power falling 7% in Kuala Lumpur to its lowest in two months.
Market Reaction Mixed in China
Markets reaction in China was also mixed, with a CSI300 index of AI shares down 2.2% but big data stocks up 4%. As the tech sector continues to grapple with the implications of DeepSeek’s model, one thing is clear: the industry is in for a wild ride.
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