After a record hunt last week, the stock markets are coming under massive pressure at the beginning of the week. The futures on the Nasdaq 100 are already trading over 500 points or 2.3% lower, and the US leading index S&P 500 is also slipping almost 100 points. The reason for this: The AI model DeepSeek raises concerns about US dominance in the tech sector and is thus weighing on technology stocks.
DeepSeek weighs on US stock markets
As Bloomberg recently reported, Chinese AI startup DeepSeek caused turbulence in technology stocks in the US on Monday morning. The quality of its new model based on simulated considerations and its low development costs raise doubts as to whether the extremely high ratings from US competitors – and thus also from suppliers such as Nvidia – are justified. Many US tech stocks are therefore under pressure before the market and are weighing on the stock markets.
The new DeepSeek R1 model is significantly cheaper and also runs on lower capacity chips, which could challenge the US’s dominance in the technology sector. The AI model that was launched last week has risen to the top of Apple’s App Store rankings.
“DeepSeek shows that it is possible to develop powerful AI models that cost less,” says Vey-Sern Ling, Managing Director at Union Bancaire Privee. “This can derail the investment scenario for the entire AI supply chain, which is driven by heavy spending by a small handful of hyperscalers.”
Nasdaq 100 futures fall as much as 1.9% on Monday. Contracts on the S&P 500 are down over 1% as weakness in tech stocks weighs on the overall market.
-Concern about US dominance in the tech sector
The DeepSeek model R1 “calls into question the massive resources devoted to artificial intelligence by the Silicon Valley giants – and the premiums investors paid for access to them,” notes Aletheia Capital. DeepSeek’s model was developed using open source technology that is easily accessible.
The new model is “highly problematic for the thesis that the significant capital and operating expenditures that Silicon Valley has made is the most appropriate way to address the AI trend,” said Nirgunan Tiruchelvam, head of consumer and Internet at Aletheia Capital in Singapore.
The valuation premiums at companies like Nvidia were based on the firm belief that ambitious AI goals can only be achieved with large chip capacities. However, if DeepSeek is truly able to build an LLM on a “small budget,” it could prompt investors to reconsider the tech companies’ lofty valuations, according to Aletheia Capital.
FMW/Bloomberg
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