Heavy losses experienced by AI companies have led the tech-heavy Nasdaq index to fall more than 4%.

The unexpected entry of the Chinese company DeepSeek as a new player in the artificial intelligence (AI) market has shaken the dominance of U.S. companies like Nvidia, whose shares plunged more than 12% in pre-market trading on Wall Street on Monday.

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The heavy losses experienced by companies related to the AI sector have led the tech-heavy Nasdaq index to fall more than 4%. From early Monday morning, Wall Street futures, particularly those tied to the Nasdaq, pointed to a sharp bearish opening in the U.S., a trend that has also influenced European markets, where AI-related companies are experiencing significant losses.

As of 1:30 PM (CET), the Euro Stoxx 50, an index comprising Europe’s largest-cap companies, was down 1.22%, followed by Frankfurt at 1.11% and Paris at 1.73%. Meanwhile, London’s stock exchange dropped 0.72%, Milan fell 0.11%, and Madrid saw a minimal decline of 0.02%.

Dutch chip-making equipment manufacturer ASML experienced a more than 8% drop in stock value, while Infineon fell nearly 4%. Additionally, non-tech companies linked to the sector also faced sharp declines: Schneider Electric plunged more than 10%, Siemens nearly 5%, and SAP 2.19%.

Global Markets in the Red After DeepSeek’s Breakthrough

On Monday, stock markets worldwide turned red following the news that the Chinese AI company DeepSeek had climbed to the top of the free download charts on the App Store in both China and the U.S., surpassing the popular ChatGPT.

The model driving these downloads, the R1, was launched on January 20. According to experts, it is comparable to OpenAI’s GPT-4 in solving mathematical problems, programming tasks, and natural language inference.

DeepSeek’s model is open-source, allowing anyone to examine, modify, and develop it according to their needs. This has created a significant buzz in the developer community, which has praised its efficiency and low cost. These developments pose potential threats to the leadership of U.S. companies and could call into question the business models of firms like Nvidia.

Analysts Sound the Alarm

Analysts at Janus Henderson have pointed out that the emergence of “a potentially more cost-efficient approach to AI processing raises questions about the necessity of the billions of dollars in planned investments in infrastructure and intellectual property.”

“AI has been seen as a highly complex area of development, with those at the forefront perceived to have technological advantages that would allow them to grow at a rapid pace in the future. The high expected earnings growth has been used to justify very high valuations, leaving them highly exposed to any disappointments. Competition always appeared to be the biggest threat, but also the hardest to assess for investors,” they explained.

Similarly, experts at Renta4 highlighted that U.S. markets are bracing for a session of steep losses due to “fears that DeepSeek, with its cost-efficient model, threatens U.S. technological dominance and questions the valuations of leading companies in the sector like Nvidia, as well as the investment thesis across the entire AI value chain.”

On a day of losses for global stock markets, the euro strengthened, trading at US$1.051. Investors sought refuge in safe-haven assets such as sovereign debt, driving up bond prices and lowering yields. The yield on the 10-year U.S. Treasury bond fell to 4.51%, while in Europe, the German 10-year bond yield dropped to 2.50%.

teleSUR/ JF Source: EFE

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