Chinese startup DeepSeek's launch of its latest AI model, the DeepSeek R1 has made waves in the world of technology. Stock markets have also responded to the launch of the new open-source reasoning model.
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DeepSeek R1’s Impact On Tech Stocks
The launch of the app disrupted markets globally with the Nasdaq Composite losing $1 trillion from the in-market capitalisation on Monday, January 27 as it closed at 19,341.83, down by 3.07 per cent. The index went on to close at 19,733.59 on January 28 up by 2.03 per cent indicating a minor recovery after Monday’s fall. Asian markets apart from China were also hit hard, at home, the Nifty IT index also closed 3.3 per cent lower on Monday.
AI-focused tech behemoth Nvidia’s shares were among the worst hit as they closed 16.97 per cent at $118.42 apiece on Monday. The stock declined as much as 9.55 per cent in two days as it closed at $128.99 apiece on Tuesday, January 28. Semiconductor and infrastructure software products maker Broadcom's shares also declined 17.4 per cent on Monday and closed at $118.42 apiece. The stock declined as much as 15.25 per cent in two sessions as it closed at $207.36 apiece on Tuesday.
The fall seen by the markets led to a massive erosion of wealth as some of the world’s richest people lost a combined $108 billion on Monday amid major selloffs. As per reports which cited the Bloomberg Billionaires Index, Nvidia co-founder Jensen Huang saw his fortune fall by 20 per cent after Monday recording a $20.1 billion decline, Oracle Corp. co-founder Larry Ellison’s fortune tumbled $22.6 billion and Michael Dell lost $13 billion. Changpeng “CZ” Zhao the co-founder of Binance Holdings Ltd also lost $12.1 billion.
What Has Caused The Decline In Tech Stocks?
DeepSeek R1 has beaten ChatGPT in terms of app store downloads. It has been reported that the training of DeepSeek-V3 required less than $6 million worth of computing power from Nvidia H800 chips. For comparison, OpenAI claimed that it invested as much as $100 million to train its GPT-4 model.
Other key differentiating factors apart from DeepSeek R1’s include the fact that the software is open-source, allowing developers to use DeepSeek’s tools for free. Additionally, DeepSeek’s AI can run at 30 times lower costs than its U.S. counterparts as per reports. Lastly, the China-based company’s partnership with Nvidia and Broadcom’s rival AMD has also contributed to the selloff seen in the markets.
How Indian IT Coped With The News
Following the buzz around Deepseek R1’s launch, the Nifty IT fell 3.36 per cent to 42060.7 levels on Monday. The index continued to decline and fell nearly 4 per cent in two sessions to 41820.65 levels on Tuesday. At the time of writing this article, the Nifty IT index traded at 42,821.9 levels, up by 2.39 per cent.
Prashanth Tapse, Senior Vice President and Research Analyst at Mehta Equities Ltd, said that the sectoral index can move towards the 43,500-44,000 level in the short term.
“The Nifty IT Index has touched an important support mark of 41,800 and is seeing good signs of a rebound from lower levels. Major support is placed at the 41,500 mark, which, if held, we can see an upside move towards 43,500 and 44,000 odd levels in the short term,” Tapse told Outlook Money.
Shares of companies that provide AI-driven Electronic Manufacturing Services (EMS) were also affected by the sell-off witnessed by Nvidia shares post DeepSeek R1’s launch. Shares of Dixon Technologies, Kaynes Technology, and Netweb Technologies have fallen 6.4 per cent, 17.18 per cent and 20.82 per cent respectively in the two sessions (January 27 and January 28) following DeepSeek R1’s launch. MIC Electronics Ltd shares have also fallen up to 9.28 per cent in the two sessions.
Notably, the Dixon Technologies shares are trading at Rs 14,543.3 apiece down by 0.30 per cent at the time of writing this article on January 29. On the other hand, the shares of MIC Electronics Ltd, Netweb Technologies India Ltd and Kaynes Technology India Ltd are trading higher by up to 10 per cent at the time of writing this article.
Tapse told Outlook Money that the outlook for Indian IT stocks is expected to remain neutral to positive post the rise of DeepSeek. He added that he remains optimistic about Indian IT as a sector in the long run.
“The outlook would remain neutral to positive post the rise of China's DeepSeek which is seen as disrupting the technology, but I see it as the way this would actually thrive in the new landscape and raise the sector possibility. We are mostly being IT as a services and product business model while the Deepseek case has reacted negatively to chip makers assuming this would reduce the demand for chips. As a sector, we may not see a major impact on the Indian IT business models. Hence we continue to remain optimistic about the sector in the long run.
Tapse advised investors who have invested in IT stocks to not worry despite short-term volatility. He added that the earnings of IT companies for the third quarter of FY 2025 have also shown signs of recovery.
“I believe investors need not worry in the current scenario, we may have short-term volatility or limited downside kind of scenario which can throw some more opportunities to allocate more capital for the long run. Q3 earnings shows the sector is showing recovering signals and expecting it to remain strong in the ongoing headwinds,” Tapse said.
