The emergence of the Chinese startup DeepSeek, dedicated to artificial intelligence, has raised doubts among investors in the tech sector, leading to questions about the valuations of these companies. This situation has resulted in increased volatility on Wall Street, reaching levels not seen since December, significantly impacting Nvidia's shares, which fell by 13% in the pre-market session.
Monday presented itself as a dark day in the stock markets, with the main Wall Street indices showing a decline of over 4%. The Dow Jones registered a drop of 0.95%, the S&P 500 fell by 2.3%, and the tech index Nasdaq traded down by 4% in pre-market. These sharp declines occurred following the presentation of the new model from the Chinese startup DeepSeek, which has raised doubts about the artificial intelligence business and poses questions about the leadership of American tech companies, such as Nvidia.
DeepSeek, a Chinese artificial intelligence company, has developed highly rated models, such as the recently launched R1 for solving complex problems, without the need for the costly and advanced computer chips traditionally used by leading U.S. companies. This has created uncertainty about whether these chips are truly required for AI tasks and has called into question investments throughout the entire artificial intelligence supply chain.
The growing popularity of DeepSeek's artificial intelligence model has triggered a collapse of tech stocks and raises doubts about the high valuations of American companies that have benefited from the heightened expectations surrounding the future of AI, among which Nvidia stands out. Its negative impact was reflected in a 13% loss in Nvidia's shares in Monday's pre-market, while the volatility index VIX surged by 35%, reaching its highest value since December.
DeepSeek, founded by Liang Wenfeng, has been praised and compared to OpenAI and the latest offerings from Meta Platforms Inc. DeepSeek's application, which transparently shows its work and reasoning when addressing user queries, has received accolades and sits atop the rankings of the App Store of Apple Inc. following its recent launch.
The week shapes up to be a crucial phase for the earnings of major tech companies like Apple and Microsoft Corp., despite concerns about a slowdown in earnings growth and inflated valuations, especially in an AI-driven sector. The Nasdaq 100 is trading at 27 times estimated future earnings, while Nvidia is at 33 times, which has rekindled concern in financial markets.
