European Tech shares experienced a significant downturn on Monday, January 27th, 2025, with the pan-European STOXX 600 index falling 0.6% by 0941 GMT fueled by the newly released Chinese artificial intelligence (AI) model.
The introduction of DeepSeek’s low-cost, low-power AI assistant challenged the prevailing market narrative of AI driving substantial demand across the technology supply chain, from chip manufacturers to data centers. This unexpected development triggered a wave of selling, particularly impacting the technology sector.
European Tech Shares Unexpected Hit
The European tech index (.SX8P) plummeted 5.8%, marking its worst day since October 15th. Key players in the industry were one of the contributing factors to the sharp decline. ASML, a prominent chip equipment manufacturer, saw its stock price fall by 11.5% to a near nine-week low.
Similarly, ASM International experienced a substantial drop of over 15%. Siemens Energy, a supplier of electric hardware for AI infrastructure, suffered a dramatic 17.4% decline, reaching the bottom of the STOXX 600. Other companies with significant AI exposure, such as Schneider Electric, also experienced considerable losses, falling 8.1%.
Fiona Cincotta, senior market analyst at City Index, attributed the market’s reaction to the surprise element of the low-cost Chinese AI model. She identified the potential impact on the profitability of bigger rivals, especially with their substantial investments in more expensive AI infrastructure, drove the selloffs.
The market downturn also occurred against a backdrop of significant upcoming events. Major technology companies, including Apple, Meta, Microsoft, and Tesla, will release their quarterly earnings this week, adding to the existing uncertainty. These results are crucial for justifying their current valuations, and any underperformance could trigger further market volatility.
Trump’s Deadline Trade Tariff Intensify Market Anxiety
Adding to the prevailing uncertainty, President Trump’s impending February 1st deadline for imposing significant trade tariffs on key trading partners has intensified market anxiety. Further complicating the situation is the upcoming release of key economic data and central bank decisions.
Central banks around the globe, including the U.S. Federal Reserve and the European Central Bank, are expected to announce their interest rate decisions this week. While a quarter-point rate cut is anticipated from the ECB, the Fed is expected to maintain its current rate.
Nonetheless, despite the overall negative trend, some sectors showed resilience. Ryanair, a low-cost carrier, saw its stock price increase by 4.8% following the announcement of stronger-than-expected quarterly profits.
