The recent turbulence in the AI sector has sparked a significant reassessment of tech stock valuations, leading to a sharp selloff in US markets. Concerns were ignited after DeepSeek, a Chinese startup, launched a cost-effective AI model that quickly topped Apple's app store, raising questions about the sustainability of current AI valuations. This development triggered a 1.5% drop in the S&P 500 and a 3% decline in the Nasdaq 100, with Nvidia experiencing a historic 17% market-cap loss. The selloff underscores the vulnerability of indices heavily weighted with AI-driven companies, as investors reassess the bullish narrative that has dominated since the re-election of Donald Trump.
The market's reaction has driven investors towards safe-haven assets, causing a rally in Treasuries and a rise in haven currencies like the yen and Swiss franc. This shift reflects growing risk aversion amid the tech sector's volatility, with Treasury yields falling to their lowest levels this year. The disruption in the AI space has also put pressure on cryptocurrencies, with Bitcoin sliding 2.9%, highlighting the broader risk-off sentiment. As the market braces for upcoming earnings from major tech firms, the focus will be on whether these companies can meet high valuation expectations amid slower projected profit growth.
The VIX, Wall Street's "fear gauge," surged to 17.93 as of 18:31 on January 27, marking its highest level since mid-December. This increase reflects heightened market volatility and investor anxiety following the tech selloff. The current price represents a significant rise from its last close of 14.85, as market participants navigate the evolving landscape of AI valuations and their impact on broader market sentiment.