How China’s AI DeepSeek Shakes Up U.S. Stock Market ?
The emergence of China’s DeepSeek in the AI arena has sent shockwaves through Wall Street, leading to one of the most significant sell-offs in recent memory. On Monday, tech stocks bore the brunt of the impact, with Nvidia witnessing a dramatic 14.4% plunge, dragging the Nasdaq composite down by 2.8%. Bloomberg reports that this drop placed Nvidia on the brink of the largest single-stock market cap loss in history, highlighting the fragility of the AI-driven market boom.
The S&P 500 also felt the strain, dropping 1.7% in midday trading, on course for its worst performance in over a month. In stark contrast, the Dow Jones Industrial Average, which is less tech-centric, only dipped by a modest 0.1% or 54 points.
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DeepSeek’s claim of developing a cost-effective, competitive AI model has stirred the pot, especially since it achieved this feat potentially under U.S. chip export restrictions. The company’s app swiftly climbed to the top of Apple’s App Store, signaling a possible shift in AI development dynamics. However, skepticism abounds regarding its long-term influence on the AI supply chain, with analysts like Dan Ives from Wedbush Securities questioning the authenticity of DeepSeek’s achievements due to the nature of the information source.
Globally, the repercussions were felt as well; shares of the Dutch chip supplier ASML and Japan’s Softbank Group Corp. fell by 6.6% and 8.3% respectively, reflecting a broader market unease. Even companies like Constellation Energy in the U.S., involved in AI data center power, saw its stock plummet by 19%.
With AI stocks experiencing this reversal after a surge in recent years, the market is now at a crossroads. The “Magnificent Seven” tech giants, including Nvidia, have been central to the S&P 500’s gains, and their concentrated influence underscores the risk of such disruptions. Yet, not all is gloom; some like Brian Jacobsen from Annex Wealth Management suggest this could be an overreaction or might even open new investment avenues.
As major players like Apple, Meta, Microsoft, and Tesla prepare to reveal their earnings, the market’s volatility could continue. Strong performances might soothe some nerves, particularly amidst rising Treasury yields that traditionally put pressure on stock valuations.
