Tech shares struggle to regain footing after epic DeepSeek mauling
Technology
Tech shares struggle to regain footing after epic DeepSeek mauling
LONDON/SINGAPORE (Reuters) - A nascent recovery in technology shares faltered on Tuesday and AI chip leader Nvidia struggled to rise from a record-breaking wipeout sparked by a low-cost Chinese artificial intelligence model that threatens the dominance of US rivals.
In the last session, Nvidia lost $593 billion in market value - a record one-day loss for any company, while shares of companies in semiconductor, power and infrastructure companies exposed to AI collectively shed more than $1 trillion.
Monday's selloff was the result of a free AI assistant launched by Chinese startup DeepSeek, which had claimed that its models use less data at a fraction of the cost of services currently available.
Even though there was scepticism over DeepSeek's cost claims, OpenAI CEO Sam Altman called it an "impressive model", while U.S. President Donald Trump called it "a wakeup call for our industries".
"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.
DeepSeek bursting on to the AI scene has upended the industry's perception that China was years behind its bigger U.S. rivals.
Investors dumped tech stocks everywhere, with ripples felt from Tokyo to Amsterdam to Silicon Valley.
"We don't know how much of returns we're going to get off these AI investments. Everybody's second guessing what we have been doing for the last 18 months to two years, which is buying indiscriminately" into AI stocks, said Kim Forrest, chief investment officer at Bokeh Capital Partners.
"The Street is bullish in the long run, but in the short- to medium-term, things are uncertain."
In the US, the Philadelphia semiconductor index dropped 0.1%, a day after suffering its deepest one-day percentage drop since March 2020.
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The selloff is a reminder of how much investor capital is concentrated in such a small number of stocks that trade at a large premium to the rest of the market.
Before Monday's rout, Nvidia's shares were trading at nearly 60 times the value of its earnings, compared with 22 for the entire S&P 500, according to LSEG data.
The hype around AI has powered a huge flow of capital into equities, 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.
