A selloff was triggered after a cheap AI model from Chinese startup DeepSeek climbed to the top of Apple’s appstore, sparking concerns that valuations of the technology may be tough to justify. Japanese stocks fell, with chip-related shares extending Monday’s declines. That was after the S&P 500 dropped 1.5% and the Nasdaq 100 sank 3%. Nvidia Corp., the poster child of the AI boom, suffered the biggest market-cap loss for a single stock in market history.
The dollar gained against all of its Group-of-10 peers after US President Donald Trump said he’ll soon put tariffs on foreign-produced semiconductors, pharmaceuticals and some metals in order to compel producers to manufacture in the country. Scott Bessent, whom the Financial Times said backed gradual universal levies, was confirmed as the next Treasury Secretary.
US equity futures were little changed early Tuesday. Many Asian markets are shut for Lunar New Year holidays, with China, Indonesia, South Korea, Taiwan and Vietnam among those closed. Bourses in Hong Kong and Singapore are set to close early.
“What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space,” said Chris Larkin at E*Trade from Morgan Stanley. “That could make this week’s megacap tech earnings even more critical to market sentiment.”
Monday’s AI slump drove new fissures into a market narrative that prevailed since the re-election of Donald Trump in November, the America-first, tech-fueled bullishness that saw a clear upward path for risk assets spurred by deregulation, tax cuts and even government sponsorship of AI investment. Losses extended for Japan’s chip-related shares including Advantest Corp., SoftBank Group and Furukawa Electric Co., which were got caught in the global tech selloff on Monday.Treasuries edged lower Tuesday with the 10-year yield rising two basis points to 4.56% after sinking nine basis points on Monday. Australia’s 10-year yield fell five basis points. The Bloomberg Dollar Spot Index rose 0.3%, extending Monday’s gains.
The severity of the rout in US assets was proportionate to the weightings of AI-enabled firms in the biggest stock indexes. Even after a recent paring to curb their influence, the cohort of Nvidia, Apple Inc., Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Alphabet Inc. account for about 40% of the Nasdaq 100. It’s roughly 30% in the S&P 500.
Lunar New Year
Chinese investors have much to ponder as they start their Lunar New Year holidays that last until next Tuesday. The nation’s economic activity unexpectedly faltered to start the year, breaking the momentum of a recovery sparked by stimulus measures and underlining the need for Beijing to do more to prevent another slowdown.
Global traders’ focus will be on earnings announcements from the likes of Microsoft and Apple this week to restore confidence in the so-called Magnificent Seven group of companies.
Investors are heading into yet another pivotal Big Tech earnings cycle with the companies’ shares near record highs and valuations stretched. A key distinction this time: The group’s profit growth is projected to come in at the slowest pace in almost two years.
DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.
The app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with OpenAI’s latest and has granted license for individuals interested in developing chatbots using the technology to build on it.
