Nasdaq Futures Plunge Amidst Concerns Over DeepSeek's Impact on AI Chip Demand

Futures linked to the Nasdaq 100 tumbled sharply on Monday, as a surge in popularity of a Chinese artificial intelligence startup led to a broader selloff in the AI sector and the tech-heavy market. The unexpected rise of DeepSeek, a new player offering a discount AI model, has fueled investor uncertainty, particularly regarding the profitability of AI and the sector's insatiable appetite for high-tech chips.

Nasdaq and Global Tech Stocks Under Pressure

By the European morning, Nasdaq 100 futures had fallen by 2.6%, while S&P 500 futures dropped 1.4%. Shares in Nvidia (NASDAQ:NVDA), a dominant player in the AI chip market, saw a significant dip of 7% in Frankfurt-listed trading. Other tech giants like Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), and Meta (NASDAQ:META) also experienced early losses, with declines of more than 2% each.

The selloff was exacerbated in Tokyo, where Advantest, a key supplier to Nvidia, plummeted 8.5% as investors worried about the potential disruption to the AI chip supply chain. Meanwhile, Tokyo Electron, a major chip-making equipment giant, saw its shares drop by 5%.

DeepSeek's Competitive Edge Challenges the AI Chip Paradigm

The catalyst for this market shift is DeepSeek, a startup from China that has rolled out a free AI assistant, claiming to use lower-cost chips and require less data compared to its competitors. This development challenges the prevailing belief in financial markets that AI will continue to drive high demand for chips from major suppliers like Nvidia, Intel (NASDAQ:INTC), and Advanced Micro Devices (NASDAQ:AMD).

Experts, including Wong Kok Hoong, head of equity sales trading at Maybank, believe DeepSeek's rise is shaking up a crowded trade. “DeepSeek is giving investors and traders a reason to unwind,” Hoong remarked, indicating a potential shift away from traditional AI market leaders due to competitive pricing and technological advances.

Impact on SoftBank and the Broader AI Investment Landscape

SoftBank Group (TYO:9984), a major investor in AI startups, saw a sharp decline in its stock, falling more than 8%, marking its biggest one-day drop since late September. Last week, SoftBank announced a $19 billion investment to fund Stargate, a data-center joint venture with OpenAI. Despite this, SoftBank's exposure to AI companies has raised concerns about the future demand for high-performance chips and data center infrastructure.

As AI-focused investments come under scrutiny, the ripple effect is also being felt in Taiwan and South Korea, where tech-heavy markets were closed for the day. ASML (AS:ASML), the Dutch computer chip equipment manufacturer, which relies on TSMC, Intel, and Samsung as clients, faces downward pressure. The company's role as a critical supplier in the AI chip supply chain may be impacted if DeepSeek's low-cost AI model gains further traction.

The Future of AI and Chip Demand

The rise of DeepSeek has prompted investors to reassess the trajectory of the AI sector. While it remains to be seen whether DeepSeek can maintain its momentum or if other AI models will follow suit with similar cost-effective solutions, this shakeup highlights a fundamental question: Will AI continue to drive relentless demand for chips, or is the industry witnessing a paradigm shift toward more affordable and efficient AI solutions?

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