Biggest drag: A man walks past the Nvidia Corp offices in Taipei, Taiwan. Nvidia’s plunge, fuelled by investor concern about Chinese artificial intelligence startup DeepSeek, erases a record of stock market value from the world’s largest tech company. — Bloomberg
NEW YORK: Investors sold technology stocks across the globe as they worried that the emergence of a low-cost Chinese artificial intelligence (AI) model would threaten the dominance of current leaders.
The reaction shaved US$592.7bil off the chipmaker Nvidi’s market value.
Last week, Chinese startup DeepSeek launched a free AI assistant that it said used less data at a fraction of the cost of incumbent services. By Monday, the assistant had overtaken US rival ChatGPT in downloads from Apple’s app store.
This led the tech-heavy Nasdaq to fall 3.1% on Monday. Nvidia was the Nasdaq’s biggest drag, with its shares tumbling just under 17% and marking a record one-day loss in market capitalisation for a Wall Street stock, according to LSEG data.
Nvidia’s market cap loss on Monday was more than double the previous one-day record, set by Nvidia last September.
The Nasdaq’s next biggest drag was chipmaker Broadcom Inc, which finished down 17.4%, followed by ChatGPT backer Microsoft, which fell 2.1% and then Google parent Alphabet, which ended down 4.2%.
The Philadelphia semiconductor index tumbled 9.2%, for its biggest percentage drop since March 2020 and its biggest decliner was Marvell Technology, which tumbled 19.1%.
US equity declines followed a selloff that started in Asia, with Japan’s SoftBank Group finishing down 8.3%, and moved through Europe where ASML fell 7%.
“If it’s true that DeepSeek is the proverbial ‘better mousetrap’, that could disrupt the entire AI narrative that has helped drive the markets over the last two years,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centres.”
The hype around AI has powered a huge inflow of capital into equities in the last 18 months, inflating valuations and lifting stock markets to new highs.
As recently as last Wednesday, US AI-related stocks had rallied sharply after President Donald Trump announced a private sector plan for what he said would be a US$500bil investment in AI infrastructure through a joint venture known as Stargate.
Since then, SoftBank announced a US$19bil commitment to help fund the Stargate venture whose other backers include ChatGPT developer OpenAI and Oracle, whose shares finished down 13.8% on Monday. In their flight from risk, investors sought out safe-haven government bonds and currencies.
The benchmark US treasury 10-year yield fell to 4.53%, while Japan’s yen and the Swiss franc rallied against the US dollar.
Deutsche Bank analyst Adrian Cox wrote in a research note on Monday that DeepSeek was “sowing seeds of doubt to the ‘bigger is better’ approach that has fuelled the AI race up to now.”
Still, Cox said that “cheaper AI is likely to mean more AI, with an explosion in real-life uses as it becomes available in myriad forms on every conceivable device.”
After the release of the first Chinese ChatGPT equivalent, made by search engine giant Baidu, there was widespread disappointment in China over the gap in AI capabilities between US and Chinese firms.
But the apparent quality and cost-efficiency of DeepSeek’s models changed this view, with Silicon Valley executives showering praise on DeepSeek-V3 and DeepSeek-R1.
Little is known about the Hangzhou startup behind DeepSeek, whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, based on records.
Its researchers wrote in a paper last month that DeepSeek-V3 model, launched on Jan 10, used Nvidia’s lower-capability H800 chips for training, spending less than US$6mil.
Daniel Morgan, senior portfolio manager at Synovus Trust Company, which owns almost a million Nvidia shares, called Monday’s sell-off an over-reaction.
Morgan said that because DeepSeek’s AI model is for use on mobile phones and personal computers rather than data centres, it competes with ChatGPT, Meta Platforms and Alphabet’s Gemini.
“The real money in AI is providing the chips for the data centres from the likes of Nvidia, Advanced Micro Devices and Broadcom,” said Morgan. “Overall, I view the AI tech sell-off today as an opportunity to add high-quality tech shares on weakness.”
Still, Nvidia fell US$24.20 on Monday to end at US$118.42. The stock, now down 11.8% for the year to date, rose 171% in 2024 and about 239% in 2023 to trade at 56 times the value of its earnings as investors saw it as the best way to bet on the emergence of AI technology. — Reuters
