The global technology sector experienced significant declines on Monday 27 January 2025, driven by concerns over the AI industry’s demand for high-tech chips. This was triggered by the introduction of a cost-effective AI model by Chinese startup DeepSeek, which utilizes lower-cost chips and less data. This development has shaken investor confidence in the previously bullish outlook for AI-driven demand across the supply chain, from chipmakers to data centers.
Market Reaction:
- U.S. Markets:
- Nasdaq futures (NQ1!) dropped over 3%, while S&P 500 futures fell nearly 2%.
- Nvidia (NVDA), a leading AI chipmaker, saw its shares plummet by 8.4% in premarket trading, dragging down other major tech stocks. Microsoft (MSFT) fell 4%, Meta Platforms (META) declined 3.7%, and Alphabet (GOOGL) dropped 3.1%.
- European Markets:
- The European tech sector (.SX8P) slid over 5%, marking its worst day since October.
- Chipmaker ASML (ASML) fell 9.4%, and Siemens Energy (ENR), which supplies hardware for AI infrastructure, dropped nearly 20% from its recent record high.
- Asian Markets:
- Japan’s Nikkei index fell nearly 1%, with SoftBank Group (9984), a major investor in AI-focused startups, declining over 8%.
Key Takeaways:
- Investor Sentiment Shift: The introduction of a low-cost AI model has led to a reevaluation of the AI sector’s growth potential, particularly its reliance on expensive, high-performance chips.
- Chipmaker Vulnerability: Companies like Nvidia and ASML, which are heavily reliant on AI-driven demand, are particularly exposed to these shifts in market sentiment.
- Broader Tech Sector Impact: The sell-off was not limited to chipmakers, affecting major tech giants and AI-related infrastructure providers globally.
This event highlights the sensitivity of the tech sector to innovations that could disrupt existing business models and supply chains, particularly in the rapidly evolving AI industry.
