The recent unveiling of DeepSeek R1 has sent shockwaves through the global technology sector, sparking a dramatic decline in tech stocks across major marketsAs news broke, the US stock futures took a sharp tumble, with the Nasdaq 100 futures plummeting nearly 5%, the S&P 500 seeing a dip of almost 3%, and Dow futures falling close to 1%. Major players in the semiconductor industry, such as Broadcom and ASML, experienced staggering drops of over 11%, while AMD saw a decrease of more than 10% and TSMC nearly 10%. Micron Technology also faced a significant decline of approximately 9%.
Perhaps the most eye-catching was Nvidia's decline, exceeding 13%. If this trend continues until market close, it could be one of the largest one-day losses in market capitalization for a single company in historyAnalysts speculate that the success of R1 could diminish expectations surrounding the demand for Nvidia’s AI chips, raising questions regarding their sustainability in a rapidly evolving market.
The turmoil was not isolated to the United States; European tech stocks also fell victim to the swirling uncertainty
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Chip-making equipment manufacturer ASML was at the forefront of this slide, witnessing a drop of up to 12%. Analysts predict that if these losses persist through the closing bell, the combined market capitalization of the Nasdaq 100 and Europe's Stoxx 600 technology sector could see up to a staggering $1.2 trillion evaporate, showcasing the potential fallout from DeepSeek R1’s launchASML, a leader in lithography technology essential for the semiconductor industry, now faces investor skepticism regarding future orders and revenue growth as the landscape of AI chip demand shifts.
Remarkably, the DeepSeek team achieved their breakthrough with a mere $6 million investment and the utilization of around 2,000 Nvidia-specific chips – both figures considerably lower than those boasted by the world’s leading AI enterprisesThis achievement has left many questioning the inflated valuations of American technology giants represented by firms like Nvidia.
DeepSeek R1 is perceived as a formidable contender, comparable to the latest offerings from innovators such as OpenAI and Meta Platforms
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Renowned investor Marc Andreessen has hailed it as “one of the most stunning and impressive breakthroughs” in modern AI developmentFurthermore, the application’s ability to transparently demonstrate its reasoning process when responding to user inquiries has garnered widespread appreciation from users, propelling its debut to the top of the Apple App Store rankings shortly after its release.
Vey-Sern Ling, Managing Director of Union Bancaire Privee, articulated a pivotal perspective, stating, “DeepSeek shows that it’s possible to develop powerful AI models at significantly lower costsThis could disrupt the entire investment thesis around the AI supply chain, which has been driven by excessive spending from a handful of hyperscale companies.” This viewpoint sheds light on the substantial impact that DeepSeek R1 may have in reshaping the current landscape of investment in the AI industry
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Traditionally, the AI supply chain has been dominated by a few hyperscale companies investing heavily to drive technological developmentsHowever, with DeepSeek R1’s emergence, investors find themselves reevaluating the sustainability and rationality of this investment paradigm.
As the fallout continues, fears regarding the inflated valuations of American tech firms growThe Nasdaq 100 index currently boasts a P/E ratio of 27, surpassing the average of 24 over the past three yearsNvidia’s P/E ratio sits at 33, slightly below its three-year averageIn light of the overarching overvaluation seen across tech stocks, the arrival of DeepSeek R1 has catalyzed a shift in market sentiment, inciting investors to reassess and liquidate their positions in tech stocks.
In stark contrast to the gloomy outlook for American tech stocks, Chinese AI-associated shares reacted positively
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Companies like Merit Interactive, which have clear connections to DeepSeek, witnessed stock surges, with the Hang Seng Tech Index rising 2% during trading sessionsThis reflects a burgeoning market favor and recognition for Chinese AI enterprises fueled by DeepSeek R1’s successThe momentum generated by DeepSeek R1 not only augments the overall image of Chinese AI firms but also brings new developmental opportunities for related segments of the industrial chain.
Charu Chanana, Chief Investment Strategist at Saxo Markets, noted that while leaders such as Nvidia maintain a strong foothold, the landscape is vibrant with competition, explaining, “The rise of China’s DeepSeek indicates that competition is intensifying, and future competitors are rapidly evolving to challenge established players.” This assertion accurately captures the dynamic shifts within the AI competitive arena
