The rise of DeepSeek-R1, the latest AI model from the Chinese startup DeepSeek, to the top of Apple’s App Store contributed to a rocky start for Wall Street and global markets this week.
From New York to London and Tokyo, equities sank, with the US slide following a surge to all-time highs. While the S&P 500 dropped 1.5 per cent, Nasdaq 100 fell 3 per cent.
The 17 per cent plunge of US tech giant Nvidia, on the other hand, erased $589 billion from its value, the largest in market history.
Energy firms expected to profit from an unprecedented demand for AI sank as well, led by a 21 per cent beatdown for Constellation Energy Corp.
“What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space. That could make this week’s megacap tech earnings even more critical to market sentiment,” Chris Larkin from Morgan Stanley, said to Bloomberg.
Tech giants Microsoft and Apple are scheduled to make earnings announcements this week, and this could restore confidence in the ‘Magnificent Seven’ group of companies (Alphabet, Apple, Amazon, Microsoft, Meta, Nvidia and Tesla).
A gauge of the ‘Magnificent Seven’ megacaps slid 2.7 per cent, while the Philadelphia Stock Exchange Semiconductor Index and The Russell 2000 slipped 9.15 per cent and 1 per cent, respectively.
Meanwhile, according to Steve Sosnick of Interactive Brokers, a part of this ‘sudden adverse market reaction’ due to a ‘wave of complacency’ in the equities market.
“The sudden, adverse market reaction to DeepSeek indicates that some of the key assumptions that have been driving the AI trade, and hence major indices, are getting reassessed today,” Sosnick said.
A ‘Sputnik moment’ for stocks?
Paul Nolte at Murphy & Sylvest Wealth Management wasn’t sure if this was the ‘Sputnik moment’ for stocks.
“But this is certainly a wake-up call that we are not the only game in town. To put these very high valuations in the stocks thinking they have cornered the market is a huge mistake and that is being re-rated,” Nolte said.
The ‘Sputnik moment’ comes from the ‘Sputnik crisis,’ a period of public fear and anxiety in the western nations about the perceived technological gap between the US and Soviet Union, caused by the launch of Sputnik-I, the world’s first artificial satellite, by the Soviet Union.