US stocks experienced a significant downturn on Friday, a selloff primarily driven by concerns in the semiconductor sector. This decline was sparked by the introduction of an artificial intelligence model, dubbed 'DeepSeek 2.0,' from a Chinese startup. The tech-heavy Nasdaq 100 Index plummeted 2.1% by 9:55 a.m. in New York, while the S&P 500 Index was down 0.93%. Nvidia Corp. was among the leading decliners in the Magnificent Seven group, and the Philadelphia Stock Exchange Semiconductor Index, which tracks chipmakers, plunged 3.9%, officially entering a bear market.
The broader market weakness, particularly in technology and AI-related stocks, extended from preceding sessions. This recent slump reflects growing apprehension among investors regarding the sustainability of high valuations in the AI sector, especially as capital expenditure continues to accelerate. Andrew Jackson, a strategist at Ortus Advisors, commented that the sell-off indicates an unwinding of crowded AI momentum trades rather than a deterioration of the sector's long-term fundamentals. However, the impact was widespread, with major Asian chip stocks also tracking the Wall Street rout, such as Taiwan's TSMC falling 7.29% and Japanese memory chipmaker Kioxia plunging over 16% due to a patent infringement ruling.
The sentiment surrounding AI investments has shifted, with traders becoming more critical of the significant spending in the sector and questioning whether it yields meaningful returns. This is despite some positive results from companies like TSMC, which posted a sharp jump in profit and raised its full-year capital expenditure forecast from between $52 billion-$56 billion to $60 billion-$64 billion. However, investors focused more on concerns about the intensive investment cycle becoming increasingly difficult to justify. The *Bloomberg* article specifically cites the "DeepSeek 2.0" reveal as a catalyst for Friday's market plunge, amplifying these existing worries.
