US tech shares recover some losses from steep DeepSeek selloff

By Sinéad Carew, Medha Singh, Amanda Cooper

NEW YORK/BENGALURU/LONDON (Reuters) -Technology shares on Tuesday regained some ground lost and AI chip leader Nvidia rose more than 6% after the previous day's record-breaking wipeout sparked by a low-cost Chinese artificial intelligence model that threatens the dominance of U.S. rivals.

On Monday, Nvidia lost about 17% or close to $593 billion in market value - a record one-day loss for any company, while shares of companies in semiconductor, power and infrastructure companies exposed to AI collectively shed more than $1 trillion.

Monday's selloff was prompted by the release of a free AI assistant launched by China's DeepSeek last week that the startup said uses less data at a fraction of the cost of incumbent services. That garnered attention worldwide, although skepticism lingers over DeepSeek's cost claims.

While the broader technology sector was up 2.7% on Tuesday, the Philadelphia semiconductor index was down 0.2% after falling 9.2% on Monday, its deepest one-day percentage drop since March 2020.

"Today's recovery is to be anticipated given the magnitude of yesterday's selloff," said Cody Acree, chip industry analyst at Benchmark Company. "Everything was taken down en masse without much foresight into each company's exposure."

Acree said that Monday's selloff may lead investors to think twice about how much they want to pay for AI-related companies. But he does not see the emergence of cheaper AI models negating the need for more advanced chips.

"You'll need both economically sensitive models without the most advanced performance as well as the leading edge which will continue to be pushed by the large foundational models, which will continue to consume the vast majority of computing horsepower," said Acree.

"DeepSeek represents an increase in competition. Never have we seen an industry where an increase in competition leads to lower spending," he added.

Nvidia shares were last trading above $126 after a choppy start on Tuesday, but were still trading well below Friday's $142.62 close. Oracle was up 3.3% after falling about 13.8% on Monday. Marvell Technology shares were up 2.7% after falling 19% in the previous session.

While there were some doubts over DeepSeek's cost claims, Sam Altman, CEO of Microsoft-backed OpenAI, called the company an "impressive model," while U.S. President Donald Trump called it "a wakeup call for our industries".

"We will obviously deliver much better models and also it's legit invigorating to have a new competitor!" Altman, the head of the AI firm behind ChatGPT, said in a social media post.

DeepSeek's sudden burst onto the AI scene has upended the industry's perception that China was years behind its bigger U.S. rivals.

Investors dumped tech stocks everywhere, with ripples felt from Tokyo to Amsterdam to Silicon Valley.

"We don't know how much of returns we're going to get off these AI investments. Everybody's second-guessing what we have been doing for the last 18 months to two years, which is buying indiscriminately" in to AI stocks, said Kim Forrest, chief investment officer at Bokeh Capital Partners

"The Street is bullish in the long run, but in the short- to medium-term, things are uncertain."

On the European side, the U.S.-traded shares of Dutch semiconductor company ASML were down 1.6% on Tuesday after falling almost 6% on Monday.

NO MARGIN FOR ERROR

The selloff is a reminder of how much investor capital is concentrated in such a small number of stocks that trade at a large premium to the rest of the market. 

Before Monday's rout, Nvidia's shares were trading at nearly 60 times the value of its earnings, compared with 22 for the entire S&P 500, according to LSEG data. 

The hype around AI has powered a huge flow of capital into equities, leading to an increase of around $10 trillion in the market value of "Magnificent Seven" companies since ChatGPT kicked off the AI boom in November 2022.

However, the slide of Nvidia's valuation multiple to its lowest in a year, at 26.76, attracted retail investors. 

Data analytics firm Vanda Research showed that retail investors took advantage of the selloff in Nvidia to snap up a record net $562.2 million in the company's stock on Monday. Buy orders from retail orders outnumbered sell orders by 2:1 ratio on Monday, according to J.P.Morgan data.

The tech index gains on Tuesday were thanks in a large part to market heavyweights such as Apple, which was up more than 4% and was the Nasdaq's biggest boost. Other big drivers of the index were Nvidia and Microsoft, as well as Amazon.com. The latter two were both up about 2% as of midday. 

A number of Big Tech companies, including Apple and Microsoft, are due to report earnings later this week and investors will likely ask about capital spending for AI.

(Reporting by Sinéad Carew in New York, Medha Singh and in Bengaluru, Amanda Cooper in London; additional reporting by Harry Robertson and Dhara Ranasinghe in London, Ankur Banerjee and Rae Wee in Singapore, Kantaro Komiya in Tokyo, Danilo Masoni in Milan and Pranav Kashyap in Bengaluru; Editing by Christopher Cushing, Louise Heavens, Arun Koyyur and Matthew Lewis)