The ProShares UltraPro QQQ ETF (TQQQ) is experiencing significant pressure due to a confluence of factors impacting the technology sector. The emergence of DeepSeek, a Chinese AI startup, has sent shockwaves through the market, challenging the dominance of U.S. tech giants. DeepSeek's AI model, which operates on less expensive chips and requires minimal data, has quickly gained traction, raising concerns about the sustainability of high-cost AI ecosystems. This development has led to a reevaluation of the valuations of major U.S. tech companies, particularly those heavily invested in AI development. The Nasdaq 100, which TQQQ tracks, has been hit hard, with futures dropping over 3% as investors reassess the competitive landscape.
Adding to the market's unease is the anticipation of a slowdown in earnings growth for the "Magnificent Seven" tech companies, with profits projected to increase by only 22%, the smallest growth since early 2023. This comes at a time when the market is already in a risk-off mode, with investors showing little appetite for speculative bets. The broader market sentiment has shifted, with fears that the AI-driven rally may not sustain its momentum, especially with the looming threat from more cost-effective AI models like DeepSeek.
The TQQQ ETF has fallen to $80.03, down 7.75% as of 10:00 AM ET on January 27th.