HG MARKETS:

NASDAQ futures slumped on Monday, driven by a decline in artificial intelligence heavyweight Nvidia (NASDAQ: NVDA) during premarket trading. Shares of the Santa Clara-based firm dropped 10% as investors weighed the potential implications of a breakthrough AI model from Chinese startup DeepSeek, which could reduce the need for significant investment in advanced AI infrastructure.

DeepSeek’s announcement over the weekend shook global technology markets, raising concerns over the sustainability of rich valuations for companies such as Nvidia. The Chinese company unveiled an AI model that is cost-effective and capable of operating on less-advanced chips. This development challenges the long-held belief that cutting-edge, high-cost semiconductor technology is essential for AI progress, a narrative that has underpinned Nvidia’s leadership and the broader AI-driven stock rally.

Futures on the Nasdaq 100 fell 3.4%, while contracts tied to the S&P 500 declined by 2%. European markets also faced sharp losses, with tech stocks leading the downturn. Shares of ASML Holding NV, a major supplier of semiconductor equipment, dropped 11%. The Cboe Volatility Index (VIX), often referred to as the “fear gauge,” spiked, reflecting rising market uncertainty. If losses persist, the Nasdaq 100 and Europe’s Stoxx 600 technology sub-index could collectively lose approximately $1 trillion in market capitalization.

The drop in tech stocks comes as the market braces for a crucial week of earnings reports from major players such as Apple and Microsoft Corp. Analysts expect slower profit growth, raising questions about elevated valuations following the sector’s AI-fueled rally. Currently, the Nasdaq 100 trades at 27 times estimated forward earnings, compared to its three-year average of 24 times. Nvidia’s valuation sits at 33 times forward earnings, down slightly from its three-year average.

DeepSeek’s release has intensified the debate over whether China’s AI technology is genuinely lagging behind its U.S. counterparts. Despite Washington’s trade restrictions that limit China’s access to advanced chips, DeepSeek leveraged open-source technologies to develop its model. This achievement highlights the possibility that emerging competitors may find innovative ways to bypass technological barriers.

“The emergence of DeepSeek underscores the intensifying competition in the AI space,” said an industry analyst. “While companies like Nvidia maintain a strong market position today, this development serves as a reminder that dominance cannot be taken for granted. Future rivals may evolve rapidly, posing significant challenges to established players.”

As markets react to DeepSeek’s announcement, this week’s earnings reports will provide a critical litmus test for tech giants navigating a complex and increasingly competitive landscape.