Last Updated:
Nasdaq 100 Futures drops 4-5%, signaling potential broader equity losses across US and European markets.
The selloff in global AI stocks was triggered by fears of rising competition from Chinese AI startup DeepSeek, which claims to deliver advanced AI models using less sophisticated, cost-efficient chips.
A sharp selloff rattled AI and semiconductor stocks globally on January 27 with AI major Nvidia falling as much as 10 per cent. The selloff was triggered by fears of rising competition from Chinese AI start-up DeepSeek, which claims to deliver advanced AI models using less sophisticated, cost-efficient chips.
Key Market Moves
Nvidia: Shares plunged over 10% in pre-market Nasdaq trading as concerns mounted about reduced reliance on its high-end chips.
Nasdaq 100 Futures: Dropped 4-5%, signaling potential broader equity losses across US and European markets.
ASML (Dutch chip-equipment giant): Fell over 10 per cent on Euronext Amsterdam, its steepest decline since October 2024.
SoftBank: Lost 8 per cent in Tokyo trading; its massive $500 billion AI infrastructure investments and stake in ARM face scrutiny.
Bitcoin: Dipped below $100,000, reflecting risk-off sentiment.
In a post on X, venture capitalist Chamath Palihapitiya warns of a reckoning for AI valuations, particularly for companies reliant on massive capital expenditure (capex):
“There will be volatility in the stock market as capital markets absorb all of this information and re-price the values of the Mag7. Tesla is the least exposed, the rest are exposed as a direct function of the amount of CapEx they have publicly announced. Nvidia is the most at risk for obvious reasons. That said, markets will love it if Meta, Microsoft, Google etc can win WITHOUT having to spend $50-80B PER YEAR,” Chamath Palihapitiya said in the post.
Palihapitiya criticised US tech’s “big money/shiny object” approach, arguing China’s DeepSeek highlights how resource constraints can drive innovation:
“We’ve been running towards the big money/shiny object spending programs where we (USA) have thrown hundreds of billions of dollars at a problem vs thinking through the problem more cleverly and using resource constraints as an enabler,” he wrote.
DeepSeek: The Chinese Disruptor
The Beijing-based startup’s ability to compete with OpenAI and Meta using less-advanced chips has raised existential questions:
Valuation Pressures: Stratospheric AI stock prices may deflate if cheaper alternatives gain traction.
Chip Demand Shift: Reduced need for cutting-edge hardware could hit Nvidia, ASML, and semiconductor supply chains.
Broader Implications
AI Funding Freeze: Investors may curb investments in LLM development and chip infrastructure, according to market observers.
Sector Rotation: Capital could shift from AI-heavy “Magnificent 7″ stocks to sectors with lower tech dependency, they added.
Geopolitical Tensions: DeepSeek’s rise underscores the US-China tech rivalry, with policy responses likely, they said.
The selloff signals a potential inflection point for AI-driven markets. While volatility will persist, companies demonstrating capital efficiency and scalable innovation could emerge as winners. Meanwhile, China’s growing prowess in cost-effective AI solutions threatens to redraw the global tech hierarchy.
