Tech 5: DeepSeek Disrupts AI Landscape, Tech Stocks and Crypto Tumble

1. DeepSeek shakes up tech stocks

DeepSeek, a Chinese AI startup, shook the tech world on Monday (January 27) after its latest model, called DeepSeek-R1, became the Apple Store’s most popular free app over the weekend.

DeepSeek-R1 is a reportedly cost-effective and open-source AI model that rivals OpenAI's o1 in reasoning abilities. It emergence has raised questions about the competitive landscape of the rapidly evolving AI industry, and caused a sharp downturn in tech stocks, including a historic single-day market cap loss for NVIDIA (NASDAQ:NVDA).

Oracle (NYSE: ORCL) and Palantir Technologies (NASDAQ:PLTR) also saw heavy losses, and the Nasdaq-100 (INDEXNASDAQ:NDX) and S&P 500 (INDEXSP:.INX) both declined during the tech selloff.

Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) saw smaller decreases. Chipmakers Taiwan Semiconductor Manufacturing Company (NYSE:TSM), Broadcom (NASDAQ:AVGO), Arm Holdings (NASDAQ:ARM) and Advanced Micro Devices (NASDQ:AMD) also suffered declines, although Apple (NASDAQ:AAPL) gained.

The news about DeepSeek has also sparked reactions from industry leaders like Sam Altman. Politicians have commented as ell, highlighting concerns about US competitiveness and prompting an investigation into whether DeepSeek managed to acquire high-end chips that the US has tried to restrict foreign access to.

Speaking at the House Republican Conference in Miami, Florida, on Monday, US President Donald Trump said DeepSeek’s release should be a “wakeup call” for US industries to be “laser-focused on competing to win.”

Some analysts and investors see this development as validation of AI's potential, predicting increased ROI for companies using AI, a mid-cycle efficiency gain and further progress toward innovation. “The Jevon’s Paradox strikes again!” Microsoft CEO Satya Nadella tweeted on Sunday (January 26), referring to the theory that greater efficiency in the use of any given resource — AI computing, in this case — can result in increased demand for that resource.

Reports surfaced midweek that DeepSeek may have used data or models derived from OpenAI's technology. Researchers for NewsGuard also reported that DeepSeek’s capabilities may have been overstated, given its poor performance on news-related queries and its susceptibility to jailbreaking that allows for malicious outputs.

Markets stabilized as Big Tech's earnings reports were released and as the US Federal Reserve signaled that inflation remains under control and that labor market is “not a source of significant inflation pressures.”

NVIDIA, however, was not able to recoup its losses and ended the week down 3.82 percent. Oracle and Advanced Micro also finished the week in the red, while Broadcom, TSM, Arm and Palantir closed up between 4 and 12 percent.

2. Crypto market takes hit on DeepSeek news

Panic selling gripped the cryptocurrency market as well on Monday as investors reacted to DeepSeek headlines.

Bitcoin, which reached around US$106,400 on Saturday (January 25), tumbled to US$98,380 just ahead of Monday’s opening bell. The selloff slashed the crypto sector's market cap by over 6 percent to below US$3.5 trillion.

Market sentiment, however, appears to have stabilized. The latest Bloomberg Markets Live survey indicates that investors believe these developments will have a limited impact on the “Magnificent Seven” tech stocks.

Galxe co-founder Charles Wayn also suggested in a Monday email to the Investing News Network that DeepSeek’s emergence could ultimately be a positive development for crypto in the long term.

Bitcoin showed early signs of recovery before the Fed decided to leave rates unchanged on Wednesday (January 29). It retook US$105,000 on Wednesday after Chair Jerome Powell delivered a positive assessment of the labor market, but remained rangebound, failing to break US$106,000 and sliding back to just over US$102,00 as the market wrapped on Friday (January 31). Tariffs imposed by Trump are scheduled to go into effect on Saturday (February 1), leaving the near-term trajectory of the stock market — and risk-on assets like crypto — uncertain.

3. Hits and misses in Big Tech earnings

This week also brought quarterly earnings reports from major tech companies.

ASML Holding (NASDAQ:ASML) was the first to report, and saw its share price rise after it beat analysts' predictions for earnings per share (EPS), revenue and its sales forecast for the first quarter of 2025.

The company reported EPS of 6.85 euros, exceeding the expected 6.68 euros, and quarterly revenue of 9.2 billion euros, surpassing the estimated 9 billion euros. Q1 2025 sales are projected to be between 7.5 billion and 8 billion euros, with net sales for the year expected to reach between 30 and 35 billion euros.

Also sharing their latest results this past week Meta, Microsoft and Tesla (NASDAQ:TSLA).

Microsoft reported a strong performance that beat estimates, but offered a revenue forecast for Q1 that came in below expectations, resulting in a more than 5 percent drop in its share price on Thursday (January 30) morning.

Meta also outperformed analysts' projections and predicted revenue of around US$40 billion for Q1, along with significant investments in AI; however, the market had a better reaction to Meta’s results, sending its share price up after hours. Meta closed the week ahead by nearly 10 percent, while Microsoft is down 2.2 percent for the week.

Tesla’s EPS and revenue for Q4 came up short, but vehicle production and delivery surpassed estimates, and the company anticipates increased vehicle sales in 2025, supported by key initiatives like cheaper models, unsupervised Full Self-Driving and the launch of a robotaxi business later this year. Production of the Cybertruck, which is expected to be eligible for the Inflation Reduction Act consumer tax credit, is now set to begin toward the end of the year.

Tesla shares are up 2.45 percent for the week.

On Thursday, Apple's Q1 2025 results beat revenue estimates with quarterly revenue of US$124.3 billion, a 4 percent annual increase. EPS rose 10 percent from last year to US$2.40, but iPhone sales declined compared to last year and fell short of estimates at US$69.1 billion, largely due to a loss of market share in China. The company projected that revenue will grow in the low to mid-single digits in Q1 and closed the week up 5.32 percent.