European Shares Drop as China’s AI Innovation Sparks Tech Selloff

European shares faced significant losses on Monday, driven by a selloff in the technology sector after China’s DeepSeek unveiled a low-cost, energy-efficient AI model. The development raised concerns over the profitability of existing AI players and reduced demand for high-performance chips.

Market Highlights:

• STOXX 600: Fell 0.6% by 0941 GMT, mirroring declines in global equities.
• Nasdaq Futures: Dropped 3.1%, signaling a tough session ahead for U.S. tech stocks.

Tech Sector Selloff:

• DeepSeek’s AI model, which operates on lower-cost chips, disrupted market sentiment. This innovation challenges the widely held view that AI advancements will drive demand across the chipmaking supply chain.
• The European Tech Index plummeted 5.8%, marking its worst single-day performance since October 15.
• Notable Declines:
  • ASML: Dropped 11.5%, hitting a near nine-week low.
  • ASM International: Slumped over 15%.
  • Siemens Energy: Plunged 17.4%, recording the steepest loss on the STOXX 600.
  • Schneider Electric: Lost 8.1%.

Broader Market Drivers:

• U.S. Tech Earnings: Investors are bracing for quarterly earnings from tech giants such as Apple, Meta, Microsoft, and Tesla, with high expectations tied to their lofty valuations.
• Trade Tariff Deadline: With President Trump’s February 1 tariff deadline looming, uncertainty around potential U.S. trade policies is adding to market volatility.
• Central Bank Decisions: The week includes pivotal interest rate announcements:
  • European Central Bank: A 25-basis-point rate cut is already priced in.
  • U.S. Federal Reserve: Expected to maintain its current rate levels.

Economic Data and Developments:

• Eurozone: Fourth-quarter GDP figures and inflation data from key economies are due this week.
• Germany: Business morale unexpectedly improved in January, supported by a better assessment of the current economic climate.

Stock Highlights:

• Ryanair: Shares surged 4.8% after the airline reported a higher-than-expected quarterly profit.
• Universal Music Group (UMG): Jumped 5.2% to a six-month high following a new deal with Spotify, boosting investor confidence.

Outlook:

The confluence of earnings reports, trade uncertainties, and central bank policy announcements makes this a critical week for European and global markets. Investors will closely monitor the impact of emerging AI technologies, particularly as they reshape demand dynamics in the tech and chip industries.