Global technology shares recovered some poise on Tuesday, but remained vulnerable after a rout sparked by the emergence of a low-cost Chinese artificial intelligence model made investors question the sky-high valuation and dominance of AI bellwethers, reports Reuters.
Shares of chipmaker Nvidia, the poster child of the AI boom in recent years, fell 17% on Monday, wiping $593 billion from its market value – a record one-day loss for any company – and dragging U.S. stocks lower.
By Tuesday, Nvidia shares were up nearly 6% in Frankfurt, while those in Oracle rose 3.4% and AI data analytics company Palantir rose 2.97%.
It all stemmed from a free AI assistant launched by Chinese startup DeepSeek last week that the firm said uses less data at a fraction of the cost of services available currently. That garnered attention worldwide, although scepticism lingers.
OpenAI CEO Sam Altman called it an “impressive model”.
“We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!,” Altman, the head of the AI firm behind ChatGPT, said, in a social media post.
The launch and increasing popularity of DeepSeek spurred investors to dump tech stocks globally, with ripples felt from Tokyo to Amsterdam to Silicon Valley.
Markets in tech-heavy South Korea and Taiwan are closed for the next few days for Lunar New Year. Mainland China is closed until Feb. 4, leaving the spotlight firmly on Japanese firms.
On Tuesday, chip-testing equipment maker Advantest, a supplier to Nvidia, lost 10% after diving nearly 9% on Monday. Chip-making equipment maker Tokyo Electron (8035.T), opens new tab and technology start-up investor SoftBank Group slid 5%.
“It’s clearly a sell first, ask questions later approach, and we’ve actually seen that kind of move in the past in Japan,” said Kei Okamura, a portfolio manager at Neuberger Berman, referring to a global market meltdown in August headlined by Japan’s Nikkei.
In Europe on Tuesday, shares in Dutch semiconductor company ASML, which closed down 7.1% on Monday, opened up 0.9%, while shares in BE Semiconductor rose 1.2%.
Over in the U.S., Broadcom finished down 17.4%, while ChatGPT backer Microsoft fell 2.1% and Google parent Alphabet closed down 4.2%. The Philadelphia semiconductor index =ptumbled 9.2%, for its deepest percentage drop since March 2020.
The selloff has brought into the spotlight the crowded positioning among investors and the billions of dollars U.S. tech giants are pouring in to develop AI capabilities, as well as the extremely high valuation of some of these firms.
“What makes Monday’s tech selloff so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said Chief Investment Officer at The Bahnsen Group David Bahnsen.
“The excessive weighting these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indices was a significant and under-appreciated risk issue.”
The hype around AI has powered a huge flow of capital into equities, inflating valuations and lifting stock markets to record highs, leading to an increase of around $10 trillion in the market value of “Magnificent Seven” companies since ChatGPT kicked off the AI boom in November 2022.
