The emergence of DeepSeek, a new AI tool from China, is prompting a reevaluation of the AI industry's growth prospects, impacting market sentiment. DeepSeek's ability to deliver high performance with less computing power challenges the demand for high-end processing resources, potentially compressing revenue margins for major US tech companies. This development has led to a cautious reassessment of AI-driven valuations, particularly in the tech sector, which has been a significant driver of elevated equity valuations. The market's response reflects concerns about the sustainability of current valuations amid technological disruptions, leading to increased volatility as expectations are adjusted.
The ProShares Short S&P500 ETF (SH) has responded to these market dynamics, rising 1.56% to $41.66 as of 10:00 AM on Monday, January 27.