Early Monday trading saw sharp declines across the US stock market, triggered by the unexpected rise of a Chinese AI app, DeepSeek.
Over the weekend, DeepSeek soared to the top of Apple’s app chart, sending shockwaves through industries tied to artificial intelligence.
Developed at a fraction of the cost of rival systems like ChatGPT, DeepSeek’s comparable performance has raised fears that high-end microchips and energy-intensive AI data centers may no longer be as indispensable as previously thought.
This development has investors questioning the growth narrative surrounding AI infrastructure, a sector closely tied to US manufacturing.
With the possibility of cheaper AI solutions reducing the demand for advanced chips and power-hungry data centers, the market has taken a “sell first, ask questions later” approach.
Nvidia, Microsoft, Eaton, and Schneider show drops
The US is home to nearly 50% of the world’s 5,400 data centers, according to the Futrum Group, a critical foundation for AI-driven growth.
Many of these centers rely on cutting-edge microchips and infrastructure from US tech and manufacturing companies.
Monday’s trading revealed the fragility of this reliance with Nvidia, which supplies AI-focused chips, witnessing a share price drop of 11%, and Microsoft and Alphabet, major AI players, falling 3.5% and 3%, respectively.
The selloff extended beyond tech to manufacturers supplying data center components.
Shares of TE Connectivity and Amphenol, which produce electrical components, dropped 3% and 9%, respectively.
Eaton, a major provider of electrical infrastructure, experienced a dramatic 14% decline, while European peer Schneider Electric fell over 9%.
GE Vernova, and Constellation Energy among others take a hit
AI data centers are known for their massive energy consumption, which had previously boosted investments in energy infrastructure.
However, expectations of reduced AI spending led to significant declines in stocks tied to power generation and support services.
GE Vernova, spun off from GE Aerospace earlier this year, plunged 18%, while Constellation Energy dropped 17%.
Other companies linked to data center operations also felt the pain.
Trane Technologies, which provides heating and cooling systems, declined 7%, while backup-power player Generac shed 1%.
Coming into the week, GE Vernova and Constellation Energy stocks were up over 200% and 185%, respectively, since their recent peaks.
The correction brought their valuations down significantly, with price-to-earnings multiples falling closer to historical norms.
Meanwhile, TE Connectivity and Generac, which had more modest gains, saw smaller losses, highlighting that stocks most tied to AI hype bore the brunt of the selloff.
DeepSeek’s sudden emergence has forced a re-evaluation of the AI investment landscape.
Investors now face the challenge of distinguishing between short-term market reactions and long-term trends.
Stocks heavily tied to AI infrastructure may remain volatile as the market processes the implications of cost-efficient, low-resource AI solutions.
For now, those who gained the most during the AI boom appear most exposed to risk.
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