European Markets Decline as Chinese AI Innovation Pressures Tech Sector
European stock markets experienced a decline on January 27, 2025, reflecting a global downturn, particularly in the technology sector. This drop follows the introduction of a low-cost Chinese artificial intelligence (AI) model that requires minimal energy consumption, raising concerns about the profitability of competing firms and the reliance on expensive chips.
The pan-European STOXX 600 index fell by 0.6% around 6:41 AM (Brasília time), mirroring negative trends in global markets. Futures for the Nasdaq, a technology-heavy index, plummeted by 3.1%.
Chinese startup DeepSeek unveiled a free assistant powered by less expensive chips and lower data consumption. This announcement challenges existing market assumptions that the demand for AI would drive growth across the supply chain, from chip manufacturers to data centers. As a result, the European technology index dropped by 5.8%, marking its most significant single-day loss since mid-October.
Among the hardest-hit companies were ASML, a chip equipment manufacturer, which saw its stock plummet by 11.5%, reaching a nine-week low. ASM International also suffered, declining by over 15%. Siemens Energy, which supplies electrical infrastructure for AI, led losses on the STOXX 600, dropping by 17.4%, while Schneider Electric saw an 8.1% decrease.
Market analyst Fiona Cincotta highlighted that the concept of a low-cost Chinese AI model had not been previously considered, leading to market surprises. The emergence of such an accessible AI model raises fears about the profit margins of competitors, especially given the significant investments made in more expensive AI infrastructures.
The widespread sell-off of stocks comes ahead of earnings reports from major US technology companies, including Apple, Meta, Microsoft, and Tesla. These companies' inflated valuations are contingent on solid quarterly results. Investors are also bracing for a turbulent week, marked by the impending February 1 deadline for new trade tariffs imposed by US President Donald Trump, alongside monetary policy announcements from central banks worldwide.
The European Central Bank (ECB) is expected to announce a 0.25 percentage point rate cut, a move already factored into market expectations, while the US Federal Reserve is anticipated to maintain current interest rates. Additionally, economic data including fourth-quarter GDP figures for the eurozone and Germany, along with inflation statistics from major European economies, will be released throughout the week.
On a brighter note, German business confidence unexpectedly improved in January, with a more optimistic assessment of current economic conditions. In other market developments, Ryanair's stock rose by 4.8% following a quarterly profit that exceeded expectations. Universal Music Group (UMG) also saw a 5.2% increase, achieving a six-month high after announcing a new agreement with streaming giant Spotify.
