Jan 29 - Semiconductor stocks in the U.S. and Europe climbed on Wednesday for a second day after China's low-cost DeepSeek AI tool triggered a punishing selloff in artificial intelligence-linked shares earlier this week.
However, shares of Nvidia, which is at the heart of the AI markets boom, ticked 0.4% lower to $128.05 in choppy premarket trading. The stock ended 8.9% higher on Tuesday, but was still well below Friday's close of $142.62 and record high of $153.13 on Jan. 7.
European technology stocks rose, fuelled in part by a near 8% surge in shares of ASML (ASML.AS),, after the Dutch company which makes tools to manufacture computing chips, including those used in AI applications, reported a surprisingly large rise in new bookings.
U.S. peers such as Applied Materials (AMAT.O),, Lam Research (LRCX.O), and KLA Corp (KLAC.O), gained between 3.8% and 4.3%.
Nasdaq futures were up 0.4% by 7 a.m. ET (1200 GMT), suggesting the index could extend Tuesday's 2% gains. An index of European tech stocks (.SX8P), was up 3.7%.
Much of that rise was powered by ASML, while shares of chipmakers BE Semiconductor (BESI.AS), and ASM International (ASMI.AS), were also up 5% and 5.7%, respectively.
The emergence of DeepSeek's suite of AI tools as possible challengers to incumbents such as OpenAI's ChatGPT, while also signalling that development costs may be dropping rapidly, battered AI-linked stocks on Monday and wiped nearly $1 trillion off of semiconductors, power and equipment companies' market values.
The selloff was focused on Nvidia, whose shares slumped 17% on Monday and shed almost $600 billion - the largest single-day drop in market capitalisation for any company on record.
"Nvidia is not a lone wolf. At the end of the day, Nvidia carries with it more than $10 trillion of market cap of affiliated companies, whether they're doing nuclear, industrial equipment, suppliers to Nvidia. So it's a galaxy, not just the one company," Jacques-Aurélien Marcireau, co-head of equities at Edmond de Rothschild Asset Management, said.
EARNINGS TEST
DeepSeek launched a free AI assistant last week that quickly overtook OpenAI's ChatGPT on Apple's App Store in the United States and the cost and performance of the company's AI tools seemed to upend the belief in the industry that China was years behind its U.S. rivals in the AI race.
By Wednesday, there was a greater sense of calm across markets as investor focus shifted to upcoming earnings this week from several of the so-called Magnificent Seven U.S. megacaps.
Quarterly results from Microsoft (MSFT.O), and Meta (META.O), after the closing bell will be closely monitored for details on AI spending.
"This is the new line in the sand for the AI enablers and the megacap growth cohort in general," said Scott Chronert, U.S. equity strategist at Citi.
"Their ability to continue to drive positive absolute and relative returns will probably come down to investor confidence that ongoing positive revisions are forthcoming."
However, some experts have expressed scepticism over DeepSeek's success story, especially the lack of details related to the startup's spending budget.
Separately, Microsoft and OpenAI are probing if data output from the ChatGPT maker's technology was improperly used by a group linked to DeepSeek, Bloomberg News reported on Tuesday.