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Tech stocks fall as DeepSeek disrupts market

Global technology stocks experienced a sharp decline on Tuesday, with a second day of losses triggered by the emergence of a low-cost Chinese AI model. This new AI assistant, launched by China’s DeepSeek, has raised doubts about the dominance of established AI leaders like Nvidia and OpenAI. Nvidia’s shares plummeted 17% on Monday, erasing $593 billion from its market value. Other major tech companies such as Broadcom, Microsoft, and Alphabet also saw significant declines, fueling broader market concerns.

The unexpected launch of DeepSeek’s AI, which claims to use fewer data and lower costs than existing models, has disrupted the market, causing scepticism among investors. While OpenAI CEO Sam Altman praised the model, calling it ‘impressive,’ the sudden rise of a competitor from China has surprised many and highlighted the rapid pace of advancements in AI technology. This development has led to a global sell-off in tech stocks, with significant drops in companies across the US, Europe, and Japan.

The sell-off has raised concerns about the high valuations of AI and tech stocks, which have seen inflated prices due to the AI boom. Nvidia, for example, had been trading at nearly 60 times its earnings, far above the broader market’s 22 times. The market downturn underscores the risks tied to the heavy concentration of tech stocks in investor portfolios, with many fearing that the industry’s rapid expansion has created an unsustainable bubble.

This market shakeup also reflects the broader issue of leverage in the system, with investors increasingly borrowing to buy high-priced tech stocks. As a result, the unwinding of these positions, combined with algorithmic trading, has intensified the sell-off. With key earnings reports from companies like Apple and Microsoft expected this week, investors are closely watching how tech executives address concerns about capital spending and the future of AI investments.

TRUMP meme coin hype fuels wave of crypto scams

The launch of the TRUMP meme coin has drawn massive attention, reaching a $72 billion market cap in just two days. The excitement has also unleashed a wave of fraudulent activity, with over 6,800 fake tokens and 91 malicious decentralised applications (dApps) flooding the market, according to blockchain forensic firm Blockaid.

Scammers capitalised on the hype surrounding TRUMP, creating counterfeit tokens and applications designed to mimic the original coin. The surge in fake assets, particularly on networks like Solana and Ethereum, has made it increasingly difficult for investors to distinguish legitimate tokens from malicious ones. The scheme extended to tokens referencing Trump family members, further complicating the situation.

Blockaid has worked to shield users from these threats, blocking hundreds of interactions with fake assets since the TRUMP token’s release. While cryptocurrency’s decentralised nature empowers users, it also provides opportunities for bad actors, underscoring the ongoing need for vigilance and robust scam prevention efforts.

Taiwan emphasises strong ties amid Trump’s tariff threat

Taiwan described its semiconductor business with the US as a mutually beneficial partnership in response to tariff threats by Donald Trump. The economy ministry highlighted the complementary relationship between US-designed and Taiwan-produced chips, which has bolstered industries in both nations.

Trump proposed tariffs on imports of chips, pharmaceuticals, and steel, aiming to bring production to US soil. Taiwan stressed its commitment to close cooperation with Washington to address global challenges while supporting shared national interests. The presidential office reinforced this sentiment, emphasising trust and collaboration in high-tech fields.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, remains central to the global tech supply chain. Despite tariff concerns, TSMC’s ongoing $65 billion investment in US facilities demonstrates a commitment to bilateral cooperation. Taiwan’s economy minister noted minimal expected impact from tariffs due to the island’s technological leadership.

Taiwan’s trade surplus with the US surged 83% last year, fuelled by semiconductor demand. While Taiwan remains cautious about evolving US trade policies, it remains optimistic about maintaining robust economic ties.

Microsoft faces pressure ahead of AI growth forecast

Microsoft’s upcoming quarterly forecast will reveal whether its significant investments in AI, including its partnership with OpenAI, drive growth in its key Azure cloud business. Despite earlier optimism, Azure’s growth has slowed for two consecutive quarters, and investors are anxious about Microsoft’s ability to monetise AI. The company has committed about $80 billion in capital spending this year, but doubts linger over the effectiveness of its strategy, especially after a sharp drop in stock price following the launch of a competitive AI model by Chinese startup DeepSeek.

Azure, which contributes around a third of Microsoft’s revenue, is expected to show 31.8% growth in the second quarter, a slight slowdown from the previous quarter. Microsoft’s relationship with OpenAI remains a key growth driver, with Azure set to handle much of OpenAI’s cloud traffic. However, investor sentiment has soured, with growing concerns about AI monetisation, margins, and capital expenditure. Microsoft also faces the impact of a stronger dollar, which could hurt its international earnings.

In addition to Azure, Microsoft is banking on the success of its Microsoft 365 Copilot AI assistant, but adoption has been slower than anticipated. To stimulate demand, the company has adjusted its pricing, adding AI features to lower-tier Microsoft 365 plans. While the Copilot’s potential remains high, analysts project a modest penetration rate of 10%, suggesting it could add significant revenue in the coming years. Despite these challenges, Microsoft’s productivity division, which includes 365 Copilot and LinkedIn, is expected to see continued growth.

Overall, Microsoft is forecasted to report slower growth for the second quarter, with revenue expected to rise by 10.9% compared to 16% in the first quarter. Net profit is also projected to increase at a slower pace, raising questions about whether the company’s AI investments will pay off as anticipated.

Pro-crypto Scott Bessent confirmed as US Treasury Secretary

The US Senate has confirmed billionaire hedge fund manager Scott Bessent as the next Treasury Secretary, marking a significant step for fiscal policy and financial regulation under Donald Trump’s administration. The confirmation, decided by a 68 to 29 vote on 27 January, saw bipartisan support, with 16 Democrats backing the nomination.

Bessent is a vocal supporter of Trump’s economic strategy, which includes renewing $4 trillion in expiring tax cuts, imposing tariffs, and boosting oil production. During his confirmation hearing, he criticised the government’s ‘out of control’ spending, aligning with Trump’s stance on fiscal responsibility. As Treasury Secretary, Bessent will influence tax collection, the $28 trillion Treasury debt market, and international financial matters.

Known for his pro-crypto views, Bessent has openly opposed the creation of a central bank digital currency (CBDC), describing it as unnecessary for the US. He emphasised that such measures are often adopted by countries with limited investment options or economic constraints. Bessent’s stance aligns with Trump’s executive order to form a governmental group on crypto policy, which will also include AI and crypto czar David Sacks and the chairs of the SEC and CFTC.

Ripple CEO Brad Garlinghouse praised Bessent’s appointment, expressing confidence in his ability to enact policies that support innovation in technology and crypto. With a strong pro-crypto outlook, Bessent’s leadership could shape the direction of the US financial system amidst evolving global trends.

Will DeepSeek rise strenghten open-source AI in the United States?

DeepSeek, a Chinese AI company, is rapidly transforming the global artificial intelligence landscape. The models’ standout feature is their open-source nature, which allows developers worldwide to access, modify, and build upon them. This contrasts with the closed-source strategies of most American tech firms, barring Meta, fostering an environment of transparency and innovation that challenges traditional industry norms.

This shift marks a significant realignment in technological power dynamics as DeepSeek elevates China alongside open-source models to compete with the traditionally dominant American, closed-source approaches. Such advancements have impacted stock markets, causing US tech stocks to drop and signalling a shift in competitive balance between the United States and China, as well as open- versus closed-source models.

DeepSeek’s methodologies question traditional AI training practices, expediting the race towards more efficient, lower-cost processes without sacrificing performance. They have advanced public understanding of model training through self-reflection and reasoning, democratising AI developments previously shielded by companies like OpenAI.

DeepSeek’s approach highlights the potential for cost-effectiveness in AI training, reducing reliance on extensive pretraining by utilizing reinforcement learning on open models, such as Meta’s Llama 3. This facilitates access for less-resourced research labs, enabling wider contributions to AI advancements.

The ongoing competitive landscape suggests a balance could be struck between open- and closed-source offerings, placing increasing pressure on American tech firms to reconsider their strategies. In response, the US government has initiated the Stargate Project, pledging $500 billion over the next four years to fortify AI infrastructure, underscoring the need to maintain America’s competitive edge.

In conclusion, DeepSeek’s rise endorses a trend towards open-source AI, challenging the entrenched power structures within the tech industry. By demonstrating efficient methodologies and promoting a collaborative developmental environment, DeepSeek not only illuminates open-source models’ potential to spearhead innovation but also highlights the shifting global landscape of AI research. As this competition unfolds, the dominance of traditional American firms may be reassessed, with open-source models presenting a promising and strategic path for the future of global AI ecosystems.

Australian shares hit by DeepSeek’s rise in AI

The launch of DeepSeek’s cost-efficient AI model has sent shockwaves through Australian tech markets, with shares in AI-related companies experiencing steep declines. Investors are increasingly worried that the Chinese startup’s affordable technology could undermine the dominance of established players in the sector.

Among the biggest losers were AI software firm Appen, which saw its stock drop by 3.3%, and chipmaker Brainchip, which lost 10.3%. The technology sub-index fell by 1%, with major data centre operators also taking a hit. Analysts expressed concerns that DeepSeek’s success might reduce demand for AI infrastructure, which had driven heavy investments in Australian data centres.

DeepSeek’s AI assistant, launched last week, has already outpaced US competitor ChatGPT in downloads on Apple’s App Store. This rapid rise has sent ripples through the global tech sector, contributing to Nvidia’s record $592.7 billion market loss.

As Australian investors reassess their exposure to AI stocks, market strategists predict a shift towards safer sectors such as healthcare and consumer staples, after DeepSeek’s disruptive impact.

Nvidia sees record retail investment amid stock plunge

Retail investors made a record purchase of Nvidia shares on Monday, buying a net $562.2 million worth of stock, following a sharp 17% drop in its market value. The decline came after concerns arose over a low-cost AI model from Chinese startup DeepSeek, which contributed to Nvidia losing $593 billion in market value. According to Vanda Research, this marked the largest retail investment in Nvidia since data tracking began in 2014.

Nvidia has seen steady retail investment over the past few years, with approximately $7.3 billion in shares purchased last quarter. However, this was nearly half the amount recorded in the peak quarter of September 2024.

While global tech stocks showed some recovery on Tuesday, the sector remains under pressure as investors grapple with concerns over the high valuations and dominance of AI leaders like Nvidia, amid rising competition from new players like DeepSeek.

Ripple CEO pushes for inclusive digital asset reserve

Ripple CEO Brad Garlinghouse has called for a more inclusive approach to digital asset reserves, advocating for a US stockpile that represents a variety of cryptocurrencies rather than favouring a single token like Bitcoin or XRP. Highlighting the importance of a multichain ecosystem, he stressed the need for a level playing field in the crypto industry, stating, ‘Maximalism remains the enemy of crypto progress.’

Recent comments from US President Donald Trump have sparked discussions about a national digital asset reserve, an idea he supported before the election. However, market predictions suggest only a 17% chance of this initiative being authorised within Trump’s first 100 days in office.

Ripple’s XRP, used primarily for cross-border payments and remittances, remains integral to the company’s operations despite fluctuating values. On Monday, XRP traded at $2.65 following a brief spike to $3.09, reflecting the volatile nature of the cryptocurrency market.

SAP sees stronger demand for AI services

SAP anticipates growing demand for its AI services as energy-efficient models become more accessible. The company’s CEO, Christian Klein, stated that advancements like China’s DeepSeek model signal a shift toward scalable AI infrastructure, which is crucial for running general AI systems effectively.

Klein emphasised the increasing competition in the AI landscape, suggesting that the market will feature multiple large language models rather than dominance by a single player. He noted these developments as positive for SAP’s position in the industry.

Despite recent volatility in technology stocks triggered by concerns over the profitability of AI investments, SAP remains optimistic. The potential of cheaper and more efficient AI systems could reinvigorate confidence in the sector, benefiting companies with robust AI offerings.