China's new low-cost AI app DeepSeek has sent shockwaves through the tech sector, causing a massive sell-off in US tech stocks, including a nearly $1 trillion drop in Nvidia's value. Investors are re-evaluating the AI landscape and the potential impact on big tech companies.
Giant US chip maker Nvidia has seen almost $1 trillion wiped off its value and other tech giants have been hammered in response to news that China has developed a cheap and effective AI app. While the S&P 500 and tech-centric Nasdaq have been crunched, the ASX looks like it will be treading water on opening.
This comes as China's new low-cost Artificial Intelligence interrupter DeepSeek has caused all sorts of conniptions on Wall Street's Nasdaq index overnight, potentially presaging a rough time ahead for the technology behemoths known as the 'Magnificent Seven'. Four of the seven — Microsoft, Meta, Tesla and Apple — release fourth quarter earnings results this week, along with AMSL which supplies a lot of the technology to make computer chips. All have been bid up on the expectation of what AI will do for their future earnings, rather than the here and now. Investors have tended to overlook the massive R&D and capex spending the tech giants have been shelling out to position themselves for the AI revolution.So, with that in mind, investors may take a sterner look at actual earnings rather than theoretical blue-sky estimates bandied about by analysts and the companies themselves. What they see this week may be quite sobering according to senior analyst Swissquote Bank, Ipek Ozkardeskaya. Ms Ozkardeskaya says the profit growth in big-tech companies reporting this week is expected to show the slowest pace in two years. 'The Mag7 stocks eked out a 76% return in 2023 — the first year of the AI craze — but are expected to print an earnings increase of 34% in 2024, that is expected to slow down to 18% this year according to Bloomberg,' Ms Ozkardeskaya said 'And if you pull Nvidia out of this, the remaining magnificent companies are expected to print just 3% increase in their profits this year.So that leaves investors with some options to consider. That puts the stock nearly 12 per cent lower since the start of January. Is China's discount AI app DeepSeek going to be the 'black swan' event investors have been fretting about? It has certainly had an impact overnight with the juggernaut chip maker Nvidia dropping around 17% — in effect losing almost $1 trillion in value — and given its massive index weighting it has taken the S&P500 and tech-centric Nasdaq with it. At 7:30am AEDT, with Wall Street not yet closed, the S&P 500 was down 1.8% and the Nasdaq was down 3.4%. The old-school, blue-chip (not to be confused with AI chip) Dow Jones had avoided the carnage and was up 0.5%. The ASX 200 futures has been bobbing around marginally positive to marginally negative — we'll call it flat at this stage. NAB's senior FX strategist, Rodrigo Catrill says 'the DeepSeek news has triggered a rethink on the AI revolution and arguably one of the pillars of the current US exceptionalism'. 'If R1 (the DeepSeek AI platform) is as good as first impressions seem to suggest, then demand for sophisticated chips, infrastructure (think data centres) and energy may not be as large as originally thought,' Mr Catrill said. 'Looking at the S&P 500 in more detail, while the IT sector is down 5.8% with Utilities (-2.4%) and Industrials (1.2%) also in the red, Consumer staples (2.8%) and Healthcare stocks (+2.2%) are having a really good day,' Mr Catrill noted. Oil continued its slide and gold also lost ground, while iron ore made a marginal gain yesterday despite disappointing Chinese manufacturing data. Bitcoin is down around 6%, back below $US100, 000
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