TLDR
- Chinese AI startup DeepSeek launched a free AI assistant that claims to use less data at lower costs than competitors
- Nvidia stock fell 17% on Monday, losing $593 billion in market value – the largest one-day loss for any company
- The tech selloff spread globally, affecting companies from Tokyo to Amsterdam
- OpenAI CEO Sam Altman called DeepSeek’s model “impressive” while welcoming the competition
- Analysts suggest market reaction may be overblown, citing potential for expanded AI use through more efficient models
A new Chinese artificial intelligence startup called DeepSeek sparked a massive selloff in global technology stocks after launching a free AI assistant that claims to operate at a fraction of current market costs. The announcement led to widespread market reactions, with industry leader Nvidia experiencing its largest single-day loss ever.
On Monday, January 27, 2025, Nvidia’s stock plummeted 17%, erasing $593 billion in market value. This marked the biggest one-day decline for any company in market history. The ripple effects spread quickly through the technology sector, affecting companies worldwide.
The broader impact was felt immediately in major markets. The tech-heavy Nasdaq dropped 3%, while the S&P 500 fell 1.5%. The Dow Jones Industrial Average managed to reverse earlier losses, ending up 0.65%.
Other major technology companies felt the pressure. Broadcom’s shares declined 17.4%, while Microsoft dropped 2.1%. Google’s parent company Alphabet saw its stock fall 4.2%. The Philadelphia semiconductor index experienced its steepest decline since March 2020, tumbling 9.2%.
The global nature of the selloff became apparent as Japanese tech companies faced their second consecutive day of losses. Advantest, a supplier to Nvidia, dropped 10% following Monday’s 9% decline. SoftBank Group, known for its tech investments, saw its shares slide 5%.
European markets were not spared. Dutch semiconductor company ASML, which had already fallen 7.1% on Monday, decreased another 1% on Tuesday. Other European tech companies, including Schneider Electric, ASM International, and Infineon, experienced drops ranging from 1.2% to 4.7%.
DeepSeek’s emergence has challenged the perception that Chinese companies lagged behind their U.S. counterparts in AI development. The startup’s claim of creating an AI model that requires less data and operates at lower costs has attracted global attention, though some experts remain skeptical about these assertions.
OpenAI CEO Sam Altman responded to the development with optimism, calling it an “impressive model” and welcoming the competition. U.S. President Donald Trump described it as “a wakeup call for our industries.”
The market reaction has brought attention to the concentrated positioning of investors in technology stocks. Before the selloff, Nvidia’s shares traded at nearly 60 times their earnings value, compared to 22 for the broader S&P 500, according to LSEG data.
Remain Calm
However, several analysts suggest the market’s reaction might be excessive. Bernstein analyst Stacy Rasgon characterized the response as “overblown,” stating that DeepSeek’s emergence doesn’t indicate “doomsday for AI infrastructure.”
Daniel Newman, Futurum’s chief strategist, pointed to the potential benefits of more efficient AI models. He referenced the Jevons Paradox, suggesting that improved efficiency could lead to expanded AI use rather than reduced demand.
The selloff may have been intensified by algorithmic trading and leveraged positions in tech stocks. Rob Almeida, global investment strategist at MFS International, noted that such market movements can be amplified by automated trading systems and the unwinding of leveraged positions.
Microsoft CEO Satya Nadella shared his perspective on social media, suggesting that more efficient AI technology would lead to increased usage rather than decreased demand. This view aligns with other industry experts who see potential growth opportunities in improved AI efficiency.
Some tech companies showed resilience amid the turmoil. By Monday’s close, both Amazon and Meta had recovered, finishing up 0.3% and 1.9% respectively. Microsoft also closed well above its daily low, suggesting some investors saw buying opportunities in the dip.
Principal Asset Management’s chief global strategist Seema Shah downplayed concerns about a broader market correction. She emphasized that the economic environment remains favorable for earnings across most sectors.
The market’s attention has now turned to upcoming earnings reports from major tech companies, including Apple and Microsoft. These reports will be closely watched for insights into capital spending and AI development strategies.
By Tuesday, some recovery signs emerged. Nvidia shares traded up nearly 6% in Frankfurt, while Oracle rose 3.4% and Palantir increased by 2.97%.
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