Global Tech Stocks Dive As China's AI Model Shakes Market Valuations
TEHRAN (Tasnim) – Global technology stocks plunged on Tuesday, extending losses from a steep sell-off triggered by the release of a low-cost Chinese artificial intelligence model, raising concerns over inflated valuations and the dominance of AI industry leaders.
Shares of Nvidia (NVDA.O), a major player in the AI chip market, tumbled 17% on Monday, erasing $593 billion in market value — the largest one-day loss ever recorded by a single company. The decline dragged broader US markets lower.
By Tuesday, Nvidia shares recovered nearly 6% in Frankfurt trading, while Oracle (ORCL.N) rose 3.4%, and Palantir (PLTR.O), an AI data analytics firm, gained 2.97%. Meanwhile, European tech shares continued to struggle.
The sell-off began after China's DeepSeek launched a free AI assistant last week, claiming it operates on significantly less data and cost than current models. Although skepticism persists about these claims, the development garnered global attention.
OpenAI CEO Sam Altman described it as an "impressive model" and added, "We will obviously deliver much better models, and also it’s legit invigorating to have a new competitor!" Former US President Donald Trump characterized DeepSeek’s model as "a wakeup call for our industries."
DeepSeek’s emergence has disrupted the perception that Chinese tech firms lag years behind their US counterparts in AI development, sending shockwaves across global markets.
In Asia, Japan’s tech sector continued its slide. Advantest (6857.T), a supplier to Nvidia, dropped 10% on Tuesday after a 9% decline on Monday, while SoftBank Group (9984.T) fell 5%.
"It's clearly a sell-first, ask-questions-later approach," said Kei Okamura, portfolio manager at Neuberger Berman, referencing prior market meltdowns in Japan.
In Europe, Dutch semiconductor company ASML (ASML.AS) dipped 1%, reversing early gains after a 7.1% fall on Monday. Shares of Schneider Electric (SCHN.PA), ASM International (ASMI.AS), and Infineon (IFXGn.DE) also fell by 1.2%-4.7%.
US markets were not spared. Broadcom (AVGO.O) plummeted 17.4% on Monday, while Microsoft (MSFT.O), a backer of OpenAI, declined 2.1%. Google parent Alphabet (GOOGL.O) fell 4.2%, and the Philadelphia semiconductor index (.SOX) recorded a 9.2% drop, the steepest since March 2020.
The sell-off highlighted the high valuations of AI companies and the substantial sums spent by US tech giants to enhance AI capabilities. Before the decline, Nvidia’s shares were valued at nearly 60 times its earnings, compared to the S&P 500’s 22, according to LSEG data.
"What makes Monday's tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error," said David Bahnsen, Chief Investment Officer at The Bahnsen Group.
The AI frenzy has funneled billions into tech stocks, inflating their valuations and pushing market indices to record highs. Since November 2022, the combined market value of seven leading tech firms, dubbed the “Magnificent Seven,” has surged by $10 trillion.
Rob Almeida, a portfolio manager at MFS International, noted that algorithmic trading and high leverage in tech investments likely exacerbated the sell-off.
"When you get days like this, behind the scenes, leverage unwinds aren’t being accounted for," Almeida explained. "Combine all these factors — over-earnings, a packed AI supply chain, sky-high valuations, and excessive robot trades — and it all becomes clear after the fact."
With tech heavyweights like Apple and Microsoft reporting earnings this week, industry leaders are expected to address investor concerns over capital spending.
