Semiconductor stocks experienced a mixed performance on Wednesday, with European chip stocks surging due to strong earnings, while U.S. stocks, including Nvidia, faced continued pressure as investors weighed the potential impact of China’s low-cost DeepSeek AI tool.
The Philadelphia semiconductor index struggled to find direction, down 0.4% by mid-day, and the broader S&P 500 tech index fell 1.9%, primarily due to a significant drop in Nvidia’s shares, which were down more than 6%. Nvidia had seen an 8.9% increase on Tuesday after suffering a 17% drop on Monday, marking a record one-day loss in market value. The decline came after DeepSeek, a Chinese startup, unveiled its free AI assistant, which quickly overtook OpenAI’s ChatGPT in downloads on Apple’s App Store, signaling that China may be catching up in the AI race.
Investors are still trying to assess the implications of DeepSeek’s emergence and its ability to challenge established players in the AI market. Jack Ablin, CIO at Cresset Capital, pointed out that the market is in a “middle ground,” with some investors taking DeepSeek seriously and others brushing it off as a temporary disturbance. He added that investors are struggling to determine whether the news is fundamentally negative for high-priced stocks like Nvidia, or if the AI industry will continue its upward trajectory despite the challenge.
The U.S. Federal Reserve’s ongoing policy meeting and earnings results from major tech companies are also in focus. Quarterly results from Microsoft and Meta, set to be released later Wednesday, will be scrutinized for insights into their AI investment plans.
Jefferies Chief Economist Mohit Kumar noted that while chipmakers and energy sectors may continue facing pressure, other sectors could rebound from Monday’s sell-off and gain momentum. However, the current high valuations of certain tech companies will require strong earnings results to justify their prices.
Despite the buzz around DeepSeek, some experts remain skeptical of the startup’s long-term success, especially due to the lack of information about its spending budget. Additionally, OpenAI and Microsoft are investigating whether DeepSeek improperly used data from ChatGPT in its technology.
In Europe, tech stocks saw a strong rally, boosted by ASML’s nearly 5.6% gain following its report of unexpectedly strong bookings. The European tech index finished up 2.4%, with BE Semiconductor and ASM International also seeing significant gains.
In contrast, U.S. semiconductor stocks were mixed. While Nvidia, Cirrus Logic, ARM Holdings, and Broadcom all saw losses, Coherent Corp and Advanced Micro Devices posted gains, rising by 3.6% and 2.6%, respectively. ASML’s U.S. shares also saw a strong 4.4% increase.