DIGIVESTASI - U.S. technology stocks have experienced a sharp decline since Monday (January 27, 2025), with growing interest in Chinese artificial intelligence (AI) models. The rising interest in Chinese AI is believed to be driven by lower costs, particularly from Chinese AI startups like DeepSeek, which are seen as potential challengers to high valuations in the sector.

DeepSeek has now surpassed its main U.S. competitor, ChatGPT. The app is currently ranked first in the free app category in Apple's App Store in the U.S. DeepSeek has explained that they use low-cost chips and less data, which contrasts with the market’s view that AI will drive increased demand from the chip manufacturing sector and data centers.

Robert Savage, Chief Market Strategy and Insights Officer at BNY, stated that the emergence of foreign competitors in AI, which has long been dominated by the U.S., raises questions about semiconductor trade and energy requirements. This has further exacerbated the market situation, as Wall Street opened on Monday (January 27, 2025) with poor performance. All three major indices on Wall Street fell sharply, with the Dow Jones dropping 0.22% to 44,324.57, the S&P 500 falling 1.61% to 6,002.88, and Nasdaq declining by 2.64% to 19,426.66.

This significant drop was triggered by the rising popularity of China’s cheaper AI models, which affected large tech stocks such as chipmaker Nvidia, which plunged 11.4% in pre-market trading. Other tech companies, including Broadcom and Marvell Technology, experienced similar declines. Stocks of Microsoft, Meta Platforms, and Alphabet also fell between 1.8% and 3.6%.

AI server manufacturers such as Dell Technologies and Super Micro Computer saw steep declines, dropping 5.6% and 8.1%, respectively. Energy companies that are expected to see a surge in demand due to energy needs for AI data centers were also affected. Vistra and GE Vernova both dropped more than 14%.

As the week draws to a close, market attention will turn to quarterly reports from major companies like Microsoft, Meta, Apple, and Tesla, which were major drivers of profits last year. Additionally, global markets are still dealing with trade tensions following the agreement between the U.S. and Colombia to de-escalate trade issues, following the White House’s decision to accept military aircraft carrying deported migrants.

In terms of economic agenda, the market is awaiting the Federal Reserve's decision on interest rates, scheduled for Wednesday next week. Investors expect the central bank to maintain stable interest rates. The release of the December Personal Consumption Expenditures (PCE) data on Friday will also be closely watched, as it is a key indicator of inflation trends. Furthermore, proposed tariffs by former U.S. President Donald Trump are also being considered, as they could worsen inflation and hinder the interest rate reductions the market expects.

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