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This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
DeepSeek raises questions on AI investments
Chinese artificial intelligence startup DeepSeek on Monday released its reasoning model R1, which rivals the capabilities of OpenAI’s o1. The model could have cost less than 10% of Meta’s Llama, according to Jefferies estimates. That fanned fears that the huge investments into AI by U.S. firms are unwarranted. U.S. President Donald Trump said Monday that DeepSeek “should be a wake-up call” for American tech companies.
Nvidia’s $600 billion plunge
Nvidia shares plunged nearly 17% on Monday, its worst day since March 2020, on price concerns that DeepSeek raised. The chipmaker lost close to $600 billion in market cap, the biggest drop for any company on a single day in U.S. history. Still, Nvidia described DeepSeek as “an excellent AI advancement,” suggesting that the development is a boon for the company rather than a weight on its chip sales.
Energy shares fizzle out
Power companies most exposed to the tech sector’s data center boom plunged Monday, as DeepSeek’s claims led investors to question how much energy artificial intelligence applications will actually consume. Vistra closed nearly 30% lower while Talen Energy and GE Vernova tumbled more than 20%. All three stocks gave up this year’s gains.
Tech shares battered
Major U.S. benchmarks fell Monday on a broad retreat by semiconductor and AI-related stocks, though the Dow Jones Industrial Average managed to advance. Japan’s Nikkei 225 dropped around 1.5% as the country’s chip stocks, affected by DeepSeek’s release, extended their declines for a second consecutive day. Taiwan, South Korean and Chinese markets are closed for holidays.
[PRO] Nvidia sell-off an ‘overreaction’: Tom Lee
Nvidia’s slump is “an overreaction” at a scale close to the 2020 pandemic-sparked sell-off, Tom Lee, head of research at Fundstrat Global Advisors, told CNBC. Here’s why Lee isn’t changing his mind on Nvidia for now.
The bottom line
The Nvidia rout, triggered by DeepSeek-induced worries that AI models don’t actually need billions of dollars’ worth of expensive chips, is deep and scary.
Prior to Monday, the chipmaker was the most valuable publicly traded company. After the sell-off, which wiped close to $600 billion in Nvidia’s market capitalization, the company dropped to third place, behind Apple and Microsoft.
To put that tectonic shift into context, Nvidia’s plummet in market cap is larger than the entire market value of Netflix and double that of Wells Fargo, noted CNBC’s Adrian van Hauwermeiren.
Nvidia aside, other AI-adjacent plays fell steeply, causing the tech-heavy Nasdaq Composite to slide 3.07%. The S&P 500 lost 1.46%. However, the Dow Jones Industrial Average, which climbed 0.65%, was somewhat shielded from the Monday bloodbath by gains in Apple, Johnson & Johnson and Travelers.
“It’s a good example of selling first and asking questions later, and investors sort of feeling that valuations are a bit stretched for technology in general and for semiconductors in particular,” said Sam Stovall, chief investment strategist at CFRA Research.
That said, there were still pockets in the market where stocks rose, suggesting that “investors are not bailing out of stocks necessarily, but are rotating into the defensive areas,” as Stovall put it.
Some tech stocks even advanced despite the pall cast over the sector by DeepSeek. Shares of Salesforce, Adobe and Palo Alto Networks rose on the prospect that AI costs could go down and expand their margins, according to John Belton, portfolio manager at Gabelli Funds.
Echoing that sentiment, BofA Securities analyst Justin Post wrote in a note on Monday that if AI training can indeed be conducted at a fraction of what they cost today, there would be “a near-term cost benefit for advertising, travel, and other consumer app companies that use cloud AI services, while long-term hyperscaler AI-related revenues and costs would likely be lower.”
In other words, DeepSeek isn’t proving that AI is a fantastical hole into which investors and companies have been pouring money.
On the contrary, it suggests that AI is more accessible and affordable than thought, and its benefits can be harnessed by companies with pockets not as deep as Big Tech’s. If DeepSeek’s claims about its low costs are proven true, investors have to get used not only to AI permeating more sectors, but also a different way of playing AI.
— CNBC’s Lisa Kailai Han, Fred Imbert, Pia Singh, Jesse Pound, Michelle Fox, Nicholas Wells, Adrian van Hauwermeiren, Scott Schnipper contributed to this report.