The collapse of US technology stocks could lead to a new financial crisis

Shares of Nvidia, one of the leading chip manufacturers, fell almost 18% yesterday, and its market capitalization fell by more than $600 billion amid the success of a cheap Chinese AI model that requires 20-50 times less computing power.

 

Chinese AI startup DeepSeek last week unveiled a free model that is as powerful as OpenAI or Meta Platforms but uses weak microchips. It immediately became the most downloaded app on the Apple App Store.

 

According to DeepSeek, only $6 million was spent on the model, while the development of the latest version of ChatGPT cost tens of billions. The developers decided to optimize the algorithms, which allows them to work effectively even on outdated microchips, while other companies simply increase computing power. At the same time, DeepSeek made the program code publicly available so that everyone interested could work on its improvement.

 

Yesterday, the Nasdaq 100 ($IUXX) technology index fell by -2.97%, while the S&P 500 ($SPX) index fell by 1.46%. Investors expect further declines in the share prices of overvalued companies that have invested hundreds of billions of dollars in data centers and AI development.

 

Stocks were supported by better-than-expected economic news from the US. The Chicago Fed's national activity index rose +0.16 in December to a 7-month high of 0.15, against expectations of a 0.06 decline. New home sales also rose +3.6% in December to a seasonally adjusted annual rate of 698,000, beating expectations for 675,000.

 

This week, technology companies with significant capitalization will publish their financial results, in particular, Microsoft and Tesla will report on Wednesday, and Apple on Thursday.

 

Foreign stock markets started the week with a decline. The Euro Stoxx 50 index fell 0.59% to a weekly low, the Chinese Shanghai Composite index fell 0.06%, and the Japanese Nikkei Stock 225 fell 0.92%.

 

The US-China artificial intelligence standoff is gaining momentum. China has responded to Donald Trump's plans to invest $500 billion in AI development and the creation of powerful data centers by releasing an open-source program that makes it harder for individual companies to control and make money.

 

The decline in stock markets can also affect commodity markets, so the coming weeks will be busy and interesting for traders.