Tech stocks stare at $1T wipeout amid DeepSeek AI buzz
What's the story
Chinese artificial intelligence (AI) start-up, DeepSeek, has triggered a major rout in global technology stocks.
The development comes largely due to the company's latest AI model, which runs seamlessly on less advanced chips.
The news has raised concerns over the lofty valuations of companies like NVIDIA Corp., whose shares plummeted by over 10% in premarket trading on Monday.
Market response
Impact on major market indices
The ripple effects of DeepSeek's innovation were felt across major market indices. NASDAQ 100 futures dropped by 3.4% while contracts on the S&P 500 declined by 2%.
In Europe, technology stocks led market losses with shares of chip equipment maker ASML Holding NV down by 11%. The Cboe Volatility Index, also known as the VIX, experienced a surge.
If losses persist, the NASDAQ 100 and Europe's Stoxx 600 tech index could lose around $1 trillion in market value.
Investment shift
DeepSeek's AI model challenges traditional investment strategies
Vey-Sern Ling, managing director at Union Bancaire Privee, told Fortune that "DeepSeek shows that it is possible to develop powerful AI models that cost less."
He also added that this could potentially disrupt the investment case for the entire AI supply chain. This chain is currently driven by high spending from a small group of hyperscalers.
Recognition
It is receiving high praise
DeepSeek's AI model is being hailed as a formidable competitor to OpenAI and Meta Platforms Inc.'s latest offerings.
Investor Marc Andreessen has lauded it as "one of the most amazing and impressive breakthroughs."
The DeepSeek-R1 app shows its work and reasoning as it replies to a user's query.
The product, which launched last week, has rapidly ascended to the top of Apple Inc.'s US App Store rankings owing to its transparency.
Information
DeepSeek's impact on Chinese AI stocks
Unlike the global slump, Chinese AI-related stocks have reacted favorably to DeepSeek's breakthrough. Mainland-listed Merit Interactive Co., which has integrated DeepSeek's model into its marketing, jumped significantly. However, AI trades elsewhere took a hit as investors re-evaluated assumptions about computing power and energy requirements.