Stock futures plunged on Monday as investors reacted to news of a breakthrough from Chinese AI company DeepSeek. The upstart has developed high-performing AI models using minimal resources, bypassing the need for advanced hardware from global chipmakers like Nvidia.
- The development has rattled markets, raising questions about the long-term sustainability of the AI spending boom and the competitive edge of U.S. tech giants.
Fallout: Nvidia shares dropped 12% in premarket trading, Broadcom fell 13%, and AMD lost 6%. Major players in the AI space also took a hit, with Microsoft falling 7% and Palantir sliding 8%. Even mega-cap tech names like Amazon and Meta Platforms, typically more resilient, declined over 4% each.
- The market reaction reflects growing skepticism about the high capital expenditures driving AI innovation in the West, particularly in light of DeepSeek’s more efficient approach.
Commitments: Investor concerns are tied to the enormous sums already committed to AI development. Microsoft plans to spend $80 billion in 2025, while Meta recently announced investments ranging from $6 billion to $65 billion.
What They’re Saying: JPMorgan analyst Sandeep Deshpande noted that DeepSeek’s success has introduced doubts about whether such significant outlays are necessary. “
- Thus, with these considerable sums flowing into AI investments in the US, that Deepseek’s highly efficient and lower resource-intensive AI model has shown such significant innovation and success is posing thoughts to investors that the AI investment cycle may be over-hyped and a more efficient future is possible.”
Bond Benefit: While tech stocks suffered, the bond market saw a boost. Investors fleeing equities turned to safe-haven assets, pushing yields on the 10-year Treasury down by more than 10 basis points ahead of the market’s open.
Bottom Line: The news has triggered a reassessment of AI investment strategies. Whether this marks the beginning of a broader recalibration or a temporary market reaction remains to be seen. Investors are left questioning whether the AI boom, once seen as a golden era, could be built on shakier foundations than anticipated.