China's AI Innovation Shakes Tech Sector: DeepSeek Challenges Chip Demand Narrative

Technology shares globally experienced a sharp decline on Monday due to concerns raised by the emergence of a Chinese AI model that utilizes lower-cost chips and reduced data.

Market Impact:

* Nasdaq futures plunged over 3%.
* S&P 500 futures tumbled nearly 2%.
* Nvidia, a leading AI chipmaker, saw an 8.4% decline in premarket trading.
* Microsoft dropped by 4%, Meta Platforms by 3.7%, and Alphabet by 3.1%.
* European tech stocks shed over 5%, poised for their worst day since October.
* Chipmaker ASML fell 9.4%, while Siemens Energy, a provider of electric hardware for AI infrastructure, plummeted around 20% from its Friday high.
* Japan's Nikkei index lost nearly 1%, dragged down by heavyweight tech stocks like SoftBank Group, which fell over 8%.

Analyst Commentary:

* Jon Withaar, Senior Portfolio Manager, Pictet Asset Management, Singapore: "While the cost-saving claims require verification, a potential breakthrough in model training could lower accessibility costs, driving positive outcomes for productivity and AI end users. However, it may negatively impact Nvidia in the short term, but ultimately benefit the broader AI industry."
* Daniel Tan, Portfolio Manager, Grasshopper Asset Management, Singapore: "The selloff in tech stocks reflects the high valuations based on P/E and P/B ratios. DeepSeek's cost-effective AI model challenges the dominance of US tech firms like Nvidia."
* Richard Clode, Tech Portfolio Manager, Janus Henderson Investors, London: "DeepSeek's innovation in general-purpose and reasoning models could foster community innovation, but raises questions about the direct monetization of LLMs and the potential impact on US chip restrictions."
* Alexandr Wang, CEO Scale AI: "DeepSeek highlights the need for the US to out-innovate and tighten export controls on chips to maintain leadership in AI."
* George Lagarias, Investment Strategist, Forvis Mazars, London: "DeepSeek's cost-effectiveness challenges the prevailing market narrative and could lead to profit-taking in a frothy market."
* Ben Barringer, Technology Analyst, Quilter Cheviot, London: "DeepSeek's success intensifies the US/China AI war and raises questions about the necessary CapEx for model building. However, reducing model training costs could drive accessibility and usage."