LONDON/SINGAPORE:Technology stocks struggled to recover on Tuesday, as AI chip giant Nvidia faced challenges following a significant market drop caused by a low-cost Chinese AI model that threatens the dominance of U.S. companies.
On Monday, Nvidia suffered a record loss of $593 billion in market value, marking the largest one-day loss ever for any company. This loss extended to other AI-related stocks, with the semiconductor and infrastructure sectors losing over $1 trillion collectively.
Nvidia shares saw a modest 2% rebound in volatile trading on Tuesday, but still lagged behind premarket gains of over 5%. Other AI stocks showed mixed performance, with Oracle rising 1.4% and Micron falling 1.3%. European tech stocks also turned lower as the session progressed.
The significant selloff on Monday was triggered by the launch of a free AI assistant by Chinese startup DeepSeek, claiming that its models require less data and cost significantly less than existing services. Although there was some skepticism about DeepSeek’s claims, OpenAI CEO Sam Altman called it “an impressive model,” noting the excitement around new competition. DeepSeek’s arrival has challenged the belief that China is far behind U.S. companies in AI development.
Investors pulled back from tech stocks globally, with concerns about the future profitability of AI investments. Kim Forrest, CIO at Bokeh Capital Partners, remarked that while the long-term outlook for AI remains positive, the short- to medium-term is uncertain, with many rethinking their AI investment strategies.
In Europe, shares in semiconductor companies like ASML and Infineon fell by 0.5% and 0.6%, respectively, while SAP saw a 0.3% dip after its quarterly results. In the U.S., the Philadelphia semiconductor index dropped 0.1%, marking its steepest daily percentage loss since March 2020.
This selloff underscores how concentrated investor capital is in a small group of high-premium tech stocks. Before the rout, Nvidia’s shares were trading at nearly 60 times its earnings, a significant premium compared to the S&P 500’s 22 multiple.
