Following a sharp sell-off in technology equities the previous session due to worries over how the performance of Chinese company DeepSeek's low-cost AI model might affect Big Tech investment plans, Nasdaq futures slightly increased on Tuesday. Following the sharp decline in the AI darling's stock price on Monday, shares of Nvidia (NASDAQ: VDA) experienced a slight increase in premarket trade.  Speaking about DeepSeek's methodology, OpenAI CEO Sam Altman calls it "impressive" in another statement.

 1. Following a sharp sell-off triggered by a China AI model, Nasdaq futures point higher.

Following a day of steep drops in the tech-heavy index due to concerns that a surge in the popularity of a low-cost Chinese AI model could harm US AI leaders, the Nasdaq futures contract headed higher on Tuesday.

By 03:20 ET (08:20 GMT), the Nasdaq futures contract had increased by 55 points, or 0.3%, while Dow futures had decreased by 96 points, or 0.2%, and S&P 500 futures remained largely steady.

In premarket U.S. trade, Nvidia's stock increased, recovering some of Monday's sharp losses. The semiconductor titan and AI boom poster child saw its worst-ever stock market decline, plunging 16.8% and wiping off roughly $600 billion in value.

Major tech firms Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) also saw declines, while an index of semiconductor stocks fell to its biggest one-day percentage since March 2020.  The benchmark S&P 500 fell 1.5%, while the Nasdaq Composite fell 3.1%.

The sell-off went beyond chipmakers to include AI-related stocks like power utilities Constellation Energy (NASDAQ: CEG) and Vistara (NYSE:VST), both of which have recently benefited from predictions that demand will increase as businesses compete to supply electricity for the data centers that support AI applications.  Builders of data center infrastructure also experienced a decline, with Vertiv Holdings (NYSE: VRT) down more than 30%.

Asian stocks are cautious.

 

Asian stocks swung in a flat-to-low range on Tuesday, with Japanese markets leading losses as domestic chipmaking firms suffered from the DeepSeek consequences.

We anticipate muted regional trade volumes throughout the week due to a number of additional regional holidays, with markets in China and South Korea off for the Lunar New Year vacation. Before an early close, the Hong Kong markets experienced a modest strengthening.

This week's attention is also on a number of significant U.S. tech earnings that are expected in the next few days, in addition to DeepSeek (more below). We generally anticipate that interest rates will remain unchanged when the Federal Reserve concludes its two-day meeting on Wednesday.

3. DeepSeek casts doubt on the outlook for AI spending.

Chinese startup DeepSeek hurt sentiment Monday by launching a free new chatbot that it claims can compete with ChatGPT from OpenAI, but with less data and at a far lower price.

The company claimed that developing its AI model on Nvidia's less powerful H800 chips only took two months and less than $6 million. On Monday, DeepSeek's model-based assistant surpassed ChatGPT as the most downloaded app on Apple's (NASDAQ: AAPL) App Store.

Although there are still questions about DeepSeek's assertions, the remark stoked concerns that the largest names in the US tech industry were spending excessive amounts of money on AI without justification. Donald Trump, the president of the United States, called DeepSeek a "wake-up call" for American businesses.

While some experts claim that Monday's sell-off was an overreaction, others have pointed out that DeepSeek's model has the potential to upend the long-standing AI optimism that has propelled equities to all-time highs over the past year and a half.


"DeepSeek now seems to show that we can do more with existing computing power than previously thought," ING analysts wrote in a client note. "The market, therefore, needs to price the slower adoption rate of high-performance computing and the revenues of companies selling AI models."

4. DeepSeek's methodology threatens tech earnings.

The emergence of Hangzhou-based DeepSeek's AI model comes ahead of a raft of quarterly results from mega-cap tech companies this week.

Even before DeepSeek roiled global markets, investors were keen for Silicon Valley's largest tech companies to provide more insight into their already ballooning AI budgets.

Many tech industry executives have previously argued that spending was necessary to avoid falling behind in the AI arms race, which is projected to revolutionize a variety of aspects of modern life.

We expect reports this week from four of the so-called "Magnificent 7" IT firms, who have largely driven recent stock market advances. We expect the software behemoth Microsoft, the electric vehicle behemoth Tesla (NASDAQ: TSLA), and the iPhone manufacturer Apple (NASDAQ:AAPL) to release their results following the Wall Street closing bell on Wednesday.

5. Altman from OpenAI on DeepSeek

Sam Altman stated on Monday that OpenAI intended to produce better models, but that the DeepSeek AI model, sometimes referred to as R1, was amazing for what it could do at its current cost.

Altman stated that as OpenAI carried out its research goals, additional processing power was still crucial, and there would probably be a high demand for AI.

Altman stated in a post on X that "Deepseek's R1 is an impressive model, particularly around what they're able to deliver for the price." "We are excited to continue executing on our research roadmap and believe more computers are more important now than ever before to succeed at our mission," the CEO of OpenAI continued.