This report is from today’s TNC’s Daily Open, our international markets update. TNC Daily Open keeps investors informed on everything they need to know, no matter where they are.
What To Note Today
DeepSeek Examines Investments In AI
The reasoning model R1 from Chinese artificial intelligence startup DeepSeek, which competes with OpenAI’s o1, was unveiled on Monday. Jefferies thinks that the model might have been less than 10% of the price of Meta’s Llama. This fuelled concerns that American companies’ massive investments in AI are unnecessary. U.S. President Donald Trump said DeepSeek “should be a wake-up call” for American tech businesses on Monday.
Nvidia’s $600 Billion Drop
Due to DeepSeek’s price concerns, Nvidia’s stock fell about 17% on Monday, its lowest since March 2020. The chipmaker saw the largest single-day decline in market capitalization in U.S. history, losing about $600 billion. Nevertheless, Nvidia called DeepSeek “an excellent AI advancement,” implying that the research is a strength for the corporation rather than a hindrance to its chip sales.
Energy Shares Fade
As investors questioned the true energy consumption of artificial intelligence applications due to DeepSeek’s assertions, power companies most exposed to the tech sector’s data centre development fell sharply on Monday. Talen Energy and GE Vernova fell more than 20%, while Vistra closed almost 30% lower. All three stocks forfeited this year’s gains.
Tech Stocks Are Hammered
The Dow Jones Industrial Average rose Monday, but major U.S. benchmarks sank due to a widespread selloff in semiconductor and AI-related firms. Japan’s chip equities, which were impacted by DeepSeek’s announcement, continued to decrease for a second day in a row, and the Nikkei 225 fell about 1.5%. Markets in China, Taiwan, and South Korea are closed on holidays.
Tom Lee Calls Nvidia’s Stock Sale A ‘Overreaction’
Tom Lee, head of research at Fundstrat Global Advisors, told reporters that Nvidia’s decline is “an overreaction” of a magnitude similar to the sell-off triggered by the 2020 pandemic. Lee hasn’t changed his mind about Nvidia just yet.
Bottom Line
DeepSeek’s concerns that AI models don’t truly require billions of dollars worth of costly chips set off the Nvidia route, which is both frightening and profound.
The chipmaker was the most valued publicly traded firm until Monday. Following the sell-off, which reduced Nvidia’s market capitalization by about $600 billion, the business fell to third place, trailing only Apple and Microsoft.
To put that tectonic shift into perspective, Nvidia’s market value collapse is greater than Netflix’s whole market value and double that of Wells Fargo.
The tech-heavy Nasdaq Composite slumped 3.07% due to sharp declines in other AI-related investments, excluding Nvidia. The S&P 500 saw a 1.46% decline. However, rises in Apple, Johnson & Johnson, and Travellers helped somewhat protect the Dow Jones Industrial Average, which increased 0.65% from Monday’s carnage.
According to Sam Stovall, CFRA Research’s chief investment strategist, “it’s a good example of selling first and asking questions later, and investors sort of feel that valuations are a bit stretched for technology in general and for semiconductors in particular.”
Nevertheless, there were still market sectors where stocks increased, indicating that, in Stovall’s words, “investors are not necessarily bailing out of stocks, but are rotating into the defensive areas.”
Despite DeepSeek’s negative impact on the industry, some tech stocks even saw gains. According to John Belton, portfolio manager at Gabelli Funds, the possibility that AI expenses could decrease and increase their margins caused shares of Salesforce, Adobe, and Palo Alto Networks to rise.
In line with this opinion, analyst Justin Post of BofA Securities stated in a note on Monday that if AI training could be carried out for a fraction of what it currently costs, there would be “a near-term cost benefit for advertising, travel, and other consumer app companies that use cloud AI services, while long-term hyperscaler AI-related revenues and costs would likely be lower.”
Simply put, DeepSeek isn’t demonstrating that AI is a fanciful hole that businesses and investors have been flooding with capital.
Conversely, it implies that AI is more affordable and available than previously believed and that businesses with less financial resources than Big Tech may benefit from it. Investors will need to adjust to a new way of playing AI, and the fact that AI affects more industries if DeepSeek’s boasts about its low costs are accurate.
