Global global technology shares recovered some poise on Tuesday but remained vulnerable after a rout sparked by the emergence of a low-cost Chinese artificial intelligence model DeepSeek with investors questioning the sky-high valuation and dominance of AI bellwethers.
Shares of Nvidia, the poster child of the AI boom in recent years, dragged US stocks lower, sinking 17 per cent on Monday and wiping $US593 billion from the chipmaker's market value, a record one-day loss for any company.
By Tuesday, Nvidia shares were up nearly six per cent in Frankfurt, while those in Oracle rose 3.4 per cent and AI data analytics company Palantir lifted 2.97 per cent.
It all stemmed from a free AI assistant launched by Chinese startup DeepSeek last week that the firm said uses less data at a fraction of the cost of services available currently, garnering significant attention worldwide including from OpenAI CEO Sam Altman who called it an "impressive model".
"We will obviously deliver much better models and also it's legit invigorating to have a new competitor!," Altman, the head of the AI firm behind ChatGPT, said in a social media post.
However, DeepSeek on Monday temporarily limited registrations due to a cyberattack after the company's AI assistant amassed sudden popularity.
The startup was also hit by outages on its website after its AI assistant became the top-rated free application available on Apple's App Store in the United States.
The company resolved issues relating to its application programming interface and users' inability to log in to the website, according to its status page. The outages on Monday were the company's longest in around 90 days and coincides with its sky-rocketing popularity.
The market selloff has brought into the spotlight the crowded positioning among investors as well as the extremely high valuation of some of these firms.
"What makes Monday's tech selloff so jarring is that the valuations of many of these AI and tech companies offer no margin of error," said David Bahnsen, chief investment officer at The Bahnsen Group.
"The excessive weighting these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indices was a significant and under-appreciated risk issue."
The hype around AI has powered a huge flow of capital into equities, inflating valuations and lifting stock markets to record highs, leading to an increase of around $US10 trillion in the market value of "Magnificent Seven" companies since ChatGPT kicked off the AI boom in November 2022.
"We're still, like many investors, gathering information," said Neuberger Berman's Okamura, noting that a lot of investors are scrambling to gather more information and decide their next move.
"I think we’re going to see many more of these (developments) going forward. And we’ve seen technological advancements like this that have had implications for cost spend."
Jun Rong Yeap, market strategist at IG, said there may be some "sell first, think later" thinking at play, with opinions divided on whether DeepSeek will eventually be the so-called game-changer that reshapes the US AI landscape.
"But if anything, market participants dislike uncertainties and are clearly unwilling to take the risks in the near term."
Little is known about the Hangzhou startup behind DeepSeek, whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, records showed.
Its researchers wrote in a paper last month that DeepSeek-V3 model, launched on January 10, used Nvidia's lower-capability H800 chips for training, at a cost of less than $US6 million.
Charu Chanana, chief investment strategist at Saxo, said the development serves as a reminder that competition in the global AI arena is intensifying and Nvidia may not be in pole position forever.
"By developing cutting-edge AI models with less advanced and more cost-efficient hardware, DeepSeek challenges the heavy investments US tech companies are pouring into high-cost AI infrastructure."
