Tech Stocks Extended Losses After Investors Reassessed Demand Outlook for Expensive AI Servers

Alexander Garcia
27 Jan, 2025
Miami

Wall Street indexes accelerated losses in Monday's trading after artificial intelligence-related stocks sharpened losses in the session. 

The S&P 500 index and the Nasdaq Composite declined as much as 2% in trading after a China-based startup released an open-source artificial intelligence model substantially cheaper than available in the U.S. 

China-based startup DeepSeek's artificial intelligence models passed all key metrics in competitive tests conducted by independent analysts. 

In the week ahead, investors are looking to review a flood of earnings from leading global corporations, and about 400 companies are scheduled to release earnings this week. 

This week, Microsoft, Meta, Apple, Tesla, IBM, Visa, Mastercard, Exxon Mobil, Blackstone, and Caterpillar are scheduled to release their earnings.

On Thursday, the U.S. Federal Reserve is set to hold the federal funds rate steady between 4.25% and 4.50% after three consecutive rate cuts in 2024.

Investors are also looking forward to the preliminary estimate of GDP growth rate in the fourth quarter. 

Last week, Wall Street and global indexes extended gains for the second week in a row amid rate-cut expectations and mixed but positive corporate earnings.

Despite the elevated U.S. service sector inflation, investors continue to believe that additional rate cuts are likely in the near future, driving the benchmark indexes to new highs.

Rate cut expectations dominated investor sentiment in Europe, and in China investors are hoping that Beijing will soon announce its plan to implement fiscal stimulus.

 

U.S. Indexes and Treasury Yields

The S&P 500 index declined 1.8% to 5,991.30, the Nasdaq Composite edged down 3.2% to 19,304.69, and the Russell 2000 index was down 1.1% to 2,280.98.

The yield on 2-year Treasury notes edged lower to 4.19%, 10-year Treasury notes dropped to 4.55%, and 30-year Treasury bonds inched down to 4.75%.

WTI crude oil decreased $0.31 to $74.33 a barrel, and natural gas prices edged lower by $0.31 to $3.72 a thermal unit.

Gold declined by $17.46 to 2,752.71 an ounce, and silver edged down by $0.18 to $30.39.

The dollar index, which weighs the US currency against a basket of foreign currencies, eased by 0.30 to 107.14 and traded at a two-year high.

 

U.S. Stock Movers 

Nvidia dropped 11% to $125.49, Broadcom fell 11% to $217.86, and AMD declined 4.2% to $117.80. 

Microsoft fell 4.2% to $424.0, Alphabet declined 3.5% to $194.25, and Meta Platforms eased 4.5% to $624.73. 

 

European Markets Dropped 1% Following Sharp Losses In Artificial Intelligence-Linked Stocks 

Stock market indexes in Europe dropped sharply following losses in artificial intelligence-related stocks, and investors awaited decisions from major central banks this week.

Benchmark indexes in Paris, Frankfurt, Milan, and London dropped as much as 2% before recovering to losses between 0.5% and 1% after artificial intelligence-linked stocks plunged more than 5% amid rising competition from China.

On Thursday, the European Central Bank is widely anticipated to trim its key lending rates amid weak economic outlook and weakening inflationary pressures.

The European Central Bank is expected to lower its policy rates by 25 basis points, but Sweden’s Riksbank may pause after trimming rates three times in a row.

Investors are also awaiting the release of GDP growth data in the eurozone, Germany, France, and Italy.

Moreover, Germany’s retail sales and Switzerland’s foreign trade data are likely to garner headlines next week.

On Thursday, the U.S. Federal Reserve is likely to hold rates at the end of its two-day policy meeting, as policymakers struggle to balance strong economic growth with resurgent inflationary pressures.

In addition, investors are looking forward to the release of corporate results from about 80 companies in Europe, including updates from LVMH, SAP, ASML, Lonza Group, Roche, Shell, ABB, Alas Copco, and Logitech. 

 

Europe Indexes and Yields

The DAX index moved lower by 1.4% to 21,102.92; the CAC-40 index fell 1.1% to 7,849.02; and the FTSE 100 index eased by 0.2% to 8,487.62. 

The yield on 10-year German bonds inched lower to 2.49%, French bonds declined to 3.26%, the UK gilts fell to 4.64%, and Italian bonds edged lower to 3.62%.

The euro was flat at $1.05; the British pound was flat at $1.24; and the U.S. dollar was higher at 90.59 Swiss cents.

Brent crude decreased $0.27 to $78.23 a barrel, and the Dutch TTF natural gas was flat at €49.91 per MWh.

 

Europe Stock Movers

Ryanair Holdings Plc gained 0.6% to €19.81 after the Irish airline carrier posted a 9% increase in passenger traffic at marginally higher fares supported by the stronger Christmas and New Year bookings.

Artificial intelligence-related stocks fell sharply after the China-based DeepSeek's models were deemed to be better and cheaper than the ones available from the U.S.-based technology companies. 

ASML Holding dropped 9% to €632.80, STMicroelectronics declined 2.2% to €23.79, and Siemens AG decreased 4.6% to €198.70. 

 

Japan's Indexes Struggled After Weakness In Tech Stocks 

Stock market indexes in Tokyo erased early gains after the weakness in tech stocks weighed on broader market sentiment.

The Nikkei 225 stock average decreased 0.9%, and the broader TOPIX increased 0.3%, as investors reviewed the latest rate decisions by the Bank of Japan. 

The Japanese yen traded around 155.85 against the U.S. dollar after Bank of Japan Governor Kazuo Ueda signaled possible additional rate cuts in the near future. 

Policymakers also revised the inflation outlook higher for the current and next fiscal years, indicating that they are ready to raise rates if necessary. 

Investors are looking ahead to a flood of economic updates later in the week, and the Tokyo-area consumer price inflation is also on tap. 

Industrial output, jobless rate, retail sales, and housing starts data are set to be released at the end of the week, and investors are looking for clues about the health of the economy. 

Japan's GDP in the current fiscal year ending in March is expected to grow less than 0.5% and rise about 1% in the fiscal year ending in March 2026. 

Asian markets lacked direction amid ongoing policy chaos in the U.S. and the lack of political will to lower huge federal government debt, which is increasingly financed by foreign investors. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average decreased 0.9% to 39,565.80, and the broader TOPIX increased 0.3% to 2,758.07. 

Tokyo Electron decreased 4.9% to ¥25,805.0, Advantest Corp. dropped 8.6% to ¥9,185.0, and Disco Corp. declined 1.8% to ¥46,580.0. 

Seven & I Holdings increased 0.3% to ¥2,435.0, Isetan Mitsukoshi rose 4.9% to ¥2,588.50, J. Front Retailing gained 3.3% to ¥2,079.50, and Fast Retailing advanced 0.6% to ¥50,000.0. 

Mitsubishi UFJ Financial Group added 0.7% to ¥1,921.00, Sumitomo Mitsui Financial Group gained 1.9% to ¥3,808.00, and Mizuho Financial added 1.6% to ¥4,049.0. 

 

China Business Activities Growth Slowed Ahead of Lunar New Year Holidays 

Financial markets in China and Hong Kong advanced after the top financial regulator announced additional measures to shore up faltering stock market confidence. 

The Hang Seng index increased 1%, and the mainland-focused CSI 300 index advanced a fraction. 

The China Securities Regulatory Commission announced measures to facilitate investment in index-linked funds and also expanded its list of insurance companies required to invest a portion of premiums on new policies in onshore stock markets. 

Twin moves by the regulatory agency are part of a plan to arrest the further decline in financial markets after five years of weakness and increase the attractiveness of Chinese stocks to foreign investors. 

Market sentiment was cautious after the latest official survey showed a slowdown in growth in activities in the manufacturing and services sector in January. 

The official Manufacturing Purchasing Managers' Index decreased to 49.1 from 50.1 in December, indicating a slowdown ahead of the Lunar New Year holidays.

China's official non-manufacturing Purchasing Managers' Index fell to 50.2 in January from a nine-month high of 52.2 in December. 

Financial markets in China will remain closed from January 28 to February 4, and in Hong Kong, they will close from midday January 28 to January 31. 

The National Bureau of Statistics on Monday released two surveys indicating the updates in business activities.

 

China Stock Movers 

The Hang Seng index increased 1% to 20,257.34, and the CSI 300 index advanced 0.1% to 3,836.30. 

Beijing Haibo Sichuang Technology soared more than 230% to 61.43 yuan in Shanghai after the electrochemical storage company completed its initial public offering. 

The storage company sold 44.4 million shares and raised 783 million yuan. 

Yalian Machinery surged 180% to 54.14 yuan in Shenzhen after the wood-based panel machinery company priced its share at 19.08 yuan in an initial public offering. 

Yalian sold 21.8 million shares and raised 416 million yuan and listed its shares on the Shenzhen Stock Exchange.