DeepSeek‘s breakthrough in cost-effective AI development has rattled global tech markets, putting major stocks on track for a potential $1 trillion wipeout. Nasdaq 100 futures have dropped 3.2%, and S&P 500 futures have fallen 1.9%. The disruption is hitting European tech particularly hard, with ASML and Nvidia seeing notable declines. This shift could signal a fundamental change in how investors value AI companies.
The seismic market response stems from DeepSeek, a Chinese AI startup, unveiling an AI model that operates on less advanced chips, challenging the resource-intensive approaches of tech giants like OpenAI and Meta Platforms. Founded by quant fund chief Liang Wenfeng, DeepSeek’s model has earned praise for its transparency and is currently topping Apple’s App Store rankings.
Major players are feeling the impact. ASML Holding NV saw its shares drop more than 8%, while Nvidia experienced a 6% decline on Germany’s Tradegate. Meanwhile, VIX futures contracts spiked, reflecting heightened market uncertainty. The emergence of DeepSeek underscores the disruptive potential of open-source technology on established market leaders.
In contrast, Chinese AI-related stocks are thriving. Merit Interactive Co. surged to its daily limit on mainland exchanges, while the Hang Seng Tech Index climbed up to 2%. This divergence highlights shifting dynamics in global tech leadership.
The timing is critical as major tech companies like Apple and Microsoft prepare to release their earnings. The Nasdaq 100 trades at 27 times estimated forward earnings, above its three-year average of 24 times. Even Nvidia’s valuation at 33 times, though high, has slightly decreased from its three-year average.
DeepSeek’s breakthrough forces a reevaluation of Silicon Valley’s massive resource allocation to AI development. The assumptions about AI costs and computational requirements may need serious recalibration. This correction could reshape the tech investment landscape for years to come.
