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European stock markets have opened cautiously higher.
The FTSE 100 index has opened 0.26% higher at 8,525, up 22 points after ending flat on Monday. The pan-European Stoxx 600 index also rose by 0.2%.
Germany’s was up 0.4% in early trading and Italy’s FTSE MiB gained 0.1%, while France’s CAC edged 0.1% lower and Spain’s Ibex slipped by 0.2%.
The DeepSeek AI assistant topped the Apple app store in the US and UK over the weekend, above OpenAI’s ChatGPT.
The Chinese start-up was hit with a cyber-attack yesterday, forcing it to temporarily limit registrations. On its status page, DeepSeek said it started to investigate the issue late Monday night Beijing time. After about two hours of monitoring, the company said it was the victim of a “large-scale malicious attack”. While DeekSeek limited registrations, existing users were still able to log on as usual.
DeepSeek claims to have used fewer chips than its rivals to develop its models, making them cheaper to produce and raising questions over a multibillion-dollar AI spending spree by US companies that has boosted markets in recent years.
Rowan Cheung, founder of an AI newsletter, said:
NEWS: DeepSeek just dropped ANOTHER open-source AI model, Janus-Pro-7B.
It’s multimodal (can generate images) and beats OpenAI’s DALL-E 3 and Stable Diffusion across GenEval and DPG-Bench benchmarks.
This comes on top of all the R1 hype. The 🐋 is cookin’ pic.twitter.com/yCmDQoke0f
— Rowan Cheung (@rowancheung) January 27, 2025
AI reporter Karen Hao posted this thread:
As someone who has reported on AI for 7 years and covered China tech as well, I think the biggest lesson to be drawn from DeepSeek is the huge cracks it illustrates with the current dominant paradigm of AI development. A long thread. 1/
— Karen Hao (@_KarenHao) January 27, 2025
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Donald Trump has said that DeepSeek should be a “wake-up call” for American AI firms, after US markets got hammered amid concerns that the Chinese startup could challenge the dominance of US AI leaders.
The new US president said in Florida:
The release of DeepSeek, AI from a Chinese company should be a wakeup call for our industries that we need to be laser-focused on competing to win.
He pointed to DeepSeek’s ability to use fewer computing resources.
I view that as a positive, as an asset… you won’t be spending as much, and you’ll get the same result, hopefully.
OpenAI chief executive Sam Altman praised DeepSeek’s launch, saying that it was “invigorating to have a new competitor”.
The popularity of the just-launched Chinese version of OpenAI’s ChatGPT, a free AI app, which the company says it built with cheaper and less advanced chips, sparked a trillion dollar sell-off in US stock markets. One investor called it a “Sputnik moment” for the world’s AI superpowers. The rout hit everything linked to the AI supply chain, from chip and cable makers to data centres and software firms.
On Wall Street, Nvidia, a leading maker of computer chips that power AI models, slumped by nearly 17% and erased almost $593bn in market cap by itself, the biggest single loss of all times. It accounted for most of the 3% drop on the tech-heavy Nasdaq.
Other tech stocks also plunged including AMD, down 6.4%, Intel, down 2.6%, and the Dutch maker of chip manufacturing equipment ASML, down 7%. An index of US semiconductor stocks slid by 9.2% in its biggest single-day percentage fall since March 2020.
The sell-off carried on in Asia, where Japan’s Nikkei lost a further 1.4%, led by chip-related stocks. (Shares are also pressured as interest rates go up in Japan.) The rest of Asia was quiet as China, Taiwan and South Korea were closed for the Lunar New Year and Hong Kong shut early ahead of the break. The Hang Seng edged up 0.1%.
Japanese chip-testing equipment maker Advantest, one of Nvidia’s suppliers, dropped by 11% while chip-making equipment maker Tokyo Electron lost 5.7% and technology start-up investor SoftBank slid by 5.2%.
The Japanese yen, considered as a safe haven, continued to rise against the dollar, up nearly 1% to its strongest level since mid-December. This hurts shares of exporters, though. US stock futures are steady after the rout, pointing to a slightly higher open on Nasdaq later today and a slightly lower open for the broader S&P 500. The dollar has bounced back by 0.5% against a basket of major currencies.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, believes that yesterday’s AI sell-off was overdone. She argues:
There are reports praising DeepSeek’s performance, some experts say it’s impressive, others say it’s disruptive, and Nvidia itself said that the company came up with something ‘excellent’ – using a lot of its less advanced chips. But beyond the fact that the company used less advanced and cheaper Nvidia chips to build its model, there are a lot of unanswered questions about DeepSeek, including whether its model could be integrated and used by other applications and whether the company really built a model for less than $6m whereas the price mark of the US AI models reaches several hundred million dollars. And last but not least, DeepSeek looks like it made something that already existed for a cheaper price. But it did not come up with an end product that did not exist.
But if DeepSeek successfully does what it says it does – bring equal performance AI models for a cheaper price – it will clearly help the Chinese local players, and all-sized companies around the world that have limited budgets to integrate AI models into their daily lives. The latter will increase the demand for less advanced chips than Nvidia’s best performers, but it will increase demand for chips, still. In this context, we were already pointing at a growing window of opportunity for alternative chip makers – like AMD – in the process of wider adoption of AI models with cheaper chips. We now have a stronger conviction in this view. As such, yesterday’s selloff could move capital around and benefit to the makers of cheaper chips that could appeal to a larger client base than the US Big Tech.
The Agenda
- 10am GMT: UK 10-year index-linked Treasury gilt auction
- 1.30pm GMT: US Durable goods orders for December
- 2pm GMT: US house prices for November
- 3pm GMT: US Conference Board consumer confidence for January
- 5pm GMT: European Central Bank president Lagarde speaks
