Before the bell: a little doubt is healthy

Nvidia: The biggest star becomes the biggest loser. Reduced demand for computing power hits Schneider Electric, ASML, and the chip sector. SAP performs well.

Nvidia dropped 17% but remains 90% higher than a year ago. This makes the record loss in market value for a company in a single day—over 500 billion dollars (almost Belgium’s GDP)—seem a bit less dramatic. At the same time, the uproar over Chinese DeepSeek is no laughing matter. DeepSeek’s AI assistant has overtaken ChatGPT on Apple’s App Store and is now ranked as the top-rated free app in the U.S. The buzz is largely because DeepSeek is said to require significantly less computing power and is 20 to 50 times cheaper than ChatGPT’s AI applications. This news particularly impacted Nvidia, as it could significantly reduce the demand for its chips and intensify competition. The pullback in the valuation of expensive tech stocks is healthy since the returns for companies offering AI were not yet clear. The Nasdaq fell 3%, and the S&P 500 dropped 1.5%. Overall, the damage was relatively contained, as shown by the 0.6% gain for the Dow Jones. The Stoxx Europe 600 remained flat.

In Asia, Tokyo lost some ground. Advantest, which makes machines to test chips, dropped over 10%. Most Chinese stock markets are closed as China celebrates the New Year tomorrow. Today, SAP, Atlas Copco, and, after market close, luxury group LVMH and champagne house Vranken will publish results. The Fed will announce its interest rate decision on Wednesday, followed by the ECB on Thursday. On Wall Street, Boeing, GM, and Lockheed Martin are set to release earnings.

AI, AI, AI: Are chips on a diet?

While little is confirmed by independent sources, this marks the first time the dominance of U.S. players and their massive investments are being questioned. This is a stark contrast to the hype and FOMO-driven atmosphere that had emerged. Besides Nvidia, other companies also took hits: Broadcom (-17.4%), Micron (-11.7%), Arm (-10.2%), and Applied Materials (-5.5%). The chip sector was hit the hardest due to concerns that less computing power—and thus infrastructure—would be needed, especially for data centers. In Europe, Schneider Electric dropped 9.5%, while ASML, which will publish results tomorrow, lost 7%. Losses for these two were deemed exaggerated, as AI-related investments are not the main drivers of their revenue. In the U.S., Microsoft fell 2.1%, while Apple, which will report earnings on Thursday, gained 3.2%.

A silver lining for German tech

With ASML faltering, SAP has cemented its position as the largest tech stock in Europe. The German tech giant performed better than expected in the fourth quarter. Its cloud business continues to grow steadily, with revenue increasing by 27% in 2024 to 4.7 billion euros, contributing to a total revenue of 9.3 billion euros (+11%). SAP reported that businesses are increasingly adopting AI applications, but this is only the beginning of growth. Its total cloud order book now stands at 63 billion euros (+40%). Operating profit rose by 26% to 8.15 billion euros. For 2025, SAP raised its forecast to between 10.3 and 10.6 billion euros. The press release did not mention the new Chinese AI hype, DeepSeek, but this might be addressed during the press conference at 10 a.m.

Did you know…

Microsoft has added its Copilot assistant to its Office 365 subscription, increasing its price by 30%? Existing subscribers can still switch to a new plan without Copilot for now.

This article was translated from Dutch and was originally published on Spaarvarkens.be.