(Reuters) – A look at the day ahead in U.S. and global markets by Amanda Cooper, Finance and Markets Breaking News Editor, Europe.
Stocks are getting hammered on Monday, with hefty declines in the technology sector as artificial intelligence big guns like Nvidia (NASDAQ:), Qualcomm (NASDAQ:) and Intel (NASDAQ:) took a dive.
The trigger was a burst of hype around the launch last week of Chinese startup DeepSeek’s AI rival to ChatGPT. Not only is DeepSeek’s app now top of the leaderboard on the Apple Store in terms of downloads, online searches for “DeepSeek” have exploded in the last 7 days, while those for its larger competitor have remained stagnant.
With four out of the so-called “Magnificent Seven” due to report earnings this week, the rise of DeepSeek as a possible alternative to Western-led AI has served as a dose of reality.
Investors have been willing to shell out for these stocks’ sky-high valuations on their promises to deliver juicy returns with their investments in AI.
The Magnificent Seven, a group comprising Wall Street’s biggest companies by market capitalisation that includes Apple, Microsoft (NASDAQ:), Nvidia and Facebook (NASDAQ:) parent Meta, now account for a third of global market value, compared with around a fifth two years ago, according to asset manager Federated Hermes (NYSE:).
DeepSeek rolled out an open-source reasoning model called DeepSeek-R1 on Monday that it said rivalled OpenAI’s o1 on several performance benchmarks. Tests last month on its V3 large language model outperformed those of OpenAI and Meta, with a smaller development budget and plans to charge users a lot less.
OpenAI kicked off the race in AI development after it launched ChatGPT in November 2022. But it was Nvidia, whose supercomputing chips power a lot of AI applications, that really ignited the rally in the stock market when it delivered bumper earnings in May 2023 that sent its valuation soaring above $1 trillion.
Since then, Nvidia shares have risen by 250%. Investors have been happy to let its Mag-7 companions ride higher on its coattails, but only to a point. Apple shares (NASDAQ:) are up just 26% in that time, while Microsoft is up 34%. Meta has been a bigger winner since then, up 145%.
U.S. President Donald Trump last week unveiled a plan for private-sector investment of $500 billion in AI infrastructure aimed at outpacing rival nations. Oracle (NYSE:), one of the companies involved in the joint venture, along with Japan’s SoftBank (TYO:) and OpenAI, saw its shares jump 7% and the second-biggest daily traded volume in its stock in a year.
Slower roll-outs of AI applications, higher costs and other hiccups have tested investors’ faith in Wall Street’s dominant players in the sector, but have not curbed their enthusiasm.
Now, competitors are starting to snap at their heels.
China’s ByteDance, the owner of TikTok, last week released an update to its flagship AI model – a direct challenger to OpenAI – while in the world of smartphones, Samsung (KS:) last week unveiled its newest Galaxy S25 smartphones, powered by Qualcomm’s chips and Google (NASDAQ:)’s AI model, which it hopes can help pump up sales and fend off both Apple and Chinese rivals.
Apple, Microsoft and Meta will report quarterly results this week, along with electric car maker Tesla (NASDAQ:).
Key developments that should provide more direction to U.S. markets later on Monday:
* Super Micro Computer (NASDAQ:) Q2 earnings
* 2- and 5-year U.S. Treasury auctions
