China's DeepSeek Sparks AI Market Rout, Nasdaq Futures Slide.
Nasdaq futures took a hit, and technology shares in Japan saw a decline on Monday, as the growing popularity of a Chinese discount AI model rattled investor confidence in the profitability of AI and the sector's heavy reliance on high-tech chips.
Nasdaq 100 futures dropped by 2.6%, while S&P 500 futures fell 1.4% by the European morning. In Tokyo, shares of Nvidia supplier Advantest dropped 8.5%.
Nvidia's Frankfurt-listed shares fell around 7%, and stocks of Tesla, Amazon, and Meta each slid more than 2% in early European trading.
The recent emergence of the AI startup DeepSeek, which has released a free assistant said to use lower-cost chips and require less data, is seen as a challenge to the market consensus that AI growth will fuel a supply chain demand from chipmakers to data centres.
Wong Kok Hoong, head of equity sales trading at Maybank, said, "It's a case of a crowded trade, and now DeepSeek is giving a reason for investors and traders to unwind." SoftBank Group, which invests heavily in AI startups, saw its shares drop more than 8%, on track for its largest one-day fall since September 30. Last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI.
Shares of chip-making equipment giant Tokyo Electron also fell by 5%.
Markets in Taiwan and South Korea, both technology-heavy, were closed for the day.
European tech stocks are expected to face pressure at the open, especially Dutch computer chip equipment maker ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers.
Nvidia, often seen as the face of AI, has experienced a 196% surge in its share price since the beginning of 2024, vastly outperforming the Nasdaq, which has risen 35%.
Capex in Question
The details about DeepSeek, the startup based in Hangzhou, remain scarce, but its assistant has managed to surpass rival ChatGPT to become the top-rated free application on the US Apple App Store as of Monday.
According to research from DeepSeek, the company’s DeepSeek-V3 model, launched on January 10, uses Nvidia’s H800 chips for training, with an estimated cost of under $6 million.
The H800 chips, while not top-of-the-line, were initially developed as a lower-capability product to bypass sales restrictions to China, though they were later banned due to U.S. sanctions.
The broader impact on data centres and related companies was also notable on Monday, with Malaysia’s YTL Power falling 7% in Kuala Lumpur to its lowest level in two months.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said, "The market is questioning the capex spend of the major tech companies," highlighting that investor positioning has become crowded.
Despite DeepSeek’s rise, there is still much uncertainty surrounding its development and hardware.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution, saying, "The idea that the most cutting-edge technologies in America, like Nvidia and ChatGPT, are the most superior globally, there's concern that this perspective might start to change. I think it might be a bit premature."
In China, the market’s reaction was mixed. The CSI300 index of AI shares fell 2.2%, while big data stocks rose by 4%.
