The tech-heavy Nasdaq slipped 3% Monday afternoon as a perceived threat from Chinese artificial intelligence startup DeepSeek prompted a global sell-off of tech stocks.
Meanwhile, the Dow Jones Industrial Average, an index of 30 of the largest U.S. companies including Nvidia (NVDA), went up 109 points or 0.2% as of Monday afternoon. Moreover, the S&P 500 tumbled by 1.8%.
The Nasdaq, which has been significantly boosted by AI hype, is especially susceptible to any investor concerns, especially when it comes to AI. And the rise of any competitor to U.S. dominance in the space, especially one that uses less energy and has less of a need for high-end chips, can cause fears to spike.
DeepSeek in December launched a free, open source large language model (LLM), which it claimed it had developed in just two months for less than $6 million. Last week, the company said it launched a model that rivals OpenAI’s ChatGPT and Meta’s (META) Llama 3.1 — and which rose to the top of Apple’s (AAPL) App Store over the weekend.
Most notably, DeepSeek built the model using lower capability chips from Nvidia, which could put pressure on the semiconductor darling if other firms move away from its premium offerings.
Read more: Nvidia stock plunges 14% as a big advance by China’s DeepSeek rattles AI investors
Analysts at Wedbush said in a research note Monday that “tech stocks are under massive pressure led by Nvidia as the Street will view DeepSeek as a major perceived threat to U.S. tech dominance and owning this AI Revolution.”
The sell-off was led by Nvidia, whose stock fell as much as 16% Monday afternoon. Other major chip stocks also sank, including ASML (ASML), Broadcom (AVGO), Super Micro Computer (SMCI), Micron (MU), and Taiwan Semiconductor Manufacturing Co. (TSM).
“U.S. tech companies are trading at premium valuations, with major AI players like Nvidia, Microsoft (MSFT), and Alphabet (GOOGL) commanding forward [price-to-earnings] multiples far above historical averages,” said Charu Chanana, chief investment strategist at investment platform Saxo, in a statement. “With these stocks priced for perfection, even minor disruptions, such as DeepSeek proving advanced AI can be built without top-tier chips, could weigh heavily on share prices.”
Analysts at Wedbush said DeepSeek is not yet a real threat to U.S. hyperscalers, and could prompt further capital expenditure from major firms like Amazon (AMZN), Alphabet, and Microsoft.
This week, significant earnings reports are due from big tech companies, such as Apple (AAPL), Tesla (TSLA), Meta (META), and Microsoft (MSFT).
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