TLDR
- Chinese AI startup DeepSeek triggered major tech sell-off, wiping $600B from Nvidia’s value in one day
- ASML’s strong bookings report helped lead tech sector recovery
- Three major tech companies (Meta, Microsoft, Tesla) set to report earnings amid AI cost concerns
- DeepSeek’s emergence challenges belief that China lagged years behind US in AI development
- Market shifts focus to whether big tech can justify massive AI investments given DeepSeek’s low-cost approach
A dramatic week in the technology sector has highlighted growing questions about artificial intelligence development costs, triggered by the emergence of Chinese AI startup DeepSeek.
The company’s launch of a free AI assistant, which quickly surpassed OpenAI’s ChatGPT on Apple’s App Store, sparked a major market reaction that sent ripples through the global tech industry.
The market response was swift and severe. Nvidia, which controls 80% of the AI chip market, experienced the largest single-day market value loss for any company in history, dropping $600 billion in market capitalization on Monday. The stock fell 17% in a single trading session, though it managed to recover 8.9% on Tuesday.
The recovery extended beyond Nvidia, with semiconductor stocks showing renewed strength by Wednesday.
ASML, the Dutch company that manufactures tools for computing chips, reported better-than-expected new bookings, sending its shares up nearly 10%. This positive news helped lift other chip-related stocks, with Applied Materials, Lam Research, and KLA Corp all gaining between 3.8% and 4.3% in premarket trading.
European markets reflected this renewed confidence, with the region’s technology stocks heading toward their largest single-day increase in a year. BE Semiconductor and ASM International saw gains of 5.3% and 6.7% respectively, contributing to the broader tech sector recovery.
The market turbulence comes at a crucial time for major technology companies. Meta Platforms, Microsoft, and Tesla are all scheduled to report earnings, with investors eager to understand how these companies plan to address the challenge posed by DeepSeek’s cost-efficient approach to AI development.
The timing of DeepSeek’s emergence has raised questions about the massive investments made by U.S. tech giants in AI technology. Over the past 12 months, the seven largest tech companies have added more than $5 trillion in combined value, representing a 66% increase in their market worth.
The impact of DeepSeek extends beyond individual companies. The technology sector’s influence on broader market movements was evident this week, with the S&P 500 dropping 1.5% on Monday despite 359 companies in the index advancing, followed by a 1% gain on Tuesday even as 349 S&P members declined.
Microsoft and OpenAI are taking the challenge seriously, with Bloomberg News reporting that both companies are investigating whether their technology’s data output was improperly used by a group connected to DeepSeek.
The market’s attention has now turned to upcoming earnings reports from major tech companies, which will need to address questions about their AI investments and development strategies. Meta’s shares have shown resilience, extending a winning streak based on expectations of strong profit growth from AI investments.
DeepSeek’s rapid rise has challenged previous assumptions about China’s position in the global AI race. The company’s ability to develop competitive AI tools at apparently lower costs has forced investors to reassess their expectations for the industry’s future development costs.
The Federal Reserve’s interest rate decision and Chair Jerome Powell’s press conference add another layer of complexity to the market dynamics, though investor focus remains primarily on the tech sector’s response to these new competitive pressures.
The Magnificent Seven tech companies’ outsized influence on market movements has become increasingly apparent. These companies account for more than half of the S&P 500’s 24% advance over the past year, highlighting their crucial role in overall market performance.
Market strategists are closely watching how these companies will justify their substantial AI investments in light of DeepSeek’s emergence. The situation has created uncertainty about the sustainability of current market valuations, with some analysts suggesting the possibility of 10% to 20% corrections over time.
Tesla’s position in this landscape is unique, with its stock having nearly doubled since its last earnings report, though its AI efforts differ from the generative AI technology offered by DeepSeek.
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