Update Equities: AI developments affect markets

The more growth- and technology-tilted NASDAQ and the S&P 500 Index lost close to 1% this week. A significant part of these losses was realized on Monday, after media reports about DeepSeek, a Chinese artificial-intelligence (AI) startup. According to these media reports, DeepSeek’s AI models could compete with the best US AI models, despite being built more cheaply and using less powerful chips. While these claims are not yet independently verified, the impact on stock prices was significant.

Nvida lost almost 17% of its market capitalization on Monday, as, potentially, the absolute necessity to have leading-edge chips for AI developments could now be less pronounced. IT sector semiconductor stocks declined significantly on Monday, as well as industrial sector stocks, such as Schneider Electric, and, in the utilities sector, Siemens Energy, also significantly declined. Data-center stocks such as Equinix and Digital Realty also lost value, as their share price had risen rapidly on expectations that more data centers would be needed.

The development of cheaper open-source AI models could impact future operations of semiconductor and cloud service providers. But the impact on the current quarterly earnings season is limited. ASML, manufacturer of cutting-edge semiconductor equipment, reported excellent results with order growth significantly above expectations.  Microsoft also announced good AI-related performance. The growth of Microsoft’s Azure cloud operations was slightly below market expectations, but demand for AI solutions was strong. At the moment, Azure is capacity constrained, so sales efforts are focused on the surging interest in AI and away from traditional workload areas. This dynamic prevented Azure from growing to near the top of its guidance range.

Jeffrey Vonk