Nasdaq futures up after sell-off; Nvidia rises premarket - what's moving markets

Investing.com - Nasdaq futures inched up on Tuesday, after a steep sell-off in technology stocks in the prior session that stemmed from concerns over the impact of the success of Chinese firm DeepSeek’s low-cost AI model on Big Tech spending plans. Shares in Nvidia (NASDAQ:NVDA) edged higher in premarket trading after the AI-darling’s stock price plummeted on Monday. Elsewhere, OpenAI CEO Sam Altman speaks out on DeepSeek’s model, calling it "impressive".

1. Nasdaq futures point higher after China AI model sparks steep sell-off

The Nasdaq futures contract pointed higher on Tuesday, following a day of sharp declines in the tech-heavy index after due to worries that a spike in notoriety of a cut-price Chinese artificial intelligence model could dent US AI leaders.

By 03:20 ET (08:20 GMT), the Nasdaq futures contract had risen by 55 points or 0.3%, while S&P 500 futures were mostly unchanged and Dow futures had ticked down by 96 points or 0.2%.

Shares in Nvidia rose in premarket U.S. trading, clawing back some of its steep losses on Monday. The chipmaking giant and poster child of the AI boom slumped by 16.8%, erasing nearly $600 billion in stock market value -- its worst-ever drop.

An index of semiconductor stocks also slipped to its largest single-day percentage dip since March 2020, while major tech companies Microsoft (NASDAQ:MSFT) and Google-owner Alphabet (NASDAQ:GOOGL) retreated as well. The Nasdaq Composite shed 3.1% and the benchmark S&P 500 lost 1.5%.

The sell-off extended beyond chipmakers and into AI-adjacent stocks such as power utilities Vistra (NYSE:VST) and Constellation Energy (NASDAQ:CEG), both of whom have been bolstered in recent months by expectations that they would see a spike in demand as companies race to power the data centers that underpin AI applications. Data center infrastructure builders fell too, with Vertiv Holdings (NYSE:VRT) decreasing by over 30%.

2. Asian stocks skittish

Asian stocks moved in a flat-to-low range on Tuesday, with Japanese markets leading losses as local chipmaking stocks were battered by the DeepSeek fallout.

Markets in China and South Korea were closed for the Lunar New Year holiday, with regional trading volumes expected to remain dull throughout the week because of several more regional holidays. Hong Kong markets firmed slightly ahead of an early close.

Beyond DeepSeek, focus this week is also on a string of major U.S. tech earnings due in the coming days (more below). Meanwhile, the Federal Reserve is widely expected to hold interest rates steady at the conclusion of a two-day meeting on Wednesday.

3. DeepSeek sparks doubt over AI spending outlook

Denting sentiment on Monday was Chinese start-up DeepSeek, which has introduced a free new chatbot it says can rival the likes of OpenAI's ChatGPT, albeit with less data and at a fraction of the cost.

The firm said it took a mere two months and under $6 million to build out its AI model on Nvidia's lower-capability H800 chips. DeepSeek's assistant run on the model became the top-rated app on Apple (NASDAQ:AAPL)'s App Store on Monday, overtaking ChatGPT.

Although doubts still surround DeepSeek's claims, the statement fueled worries that massive spending on AI by the US tech industry's biggest names was unwarranted. U.S. President Donald Trump said DeepSeek was a "wake-up call" for American companies.

Some analysts have flagged that DeepSeek's model could upend the long-standing hype over AI that has fueled stocks to record highs over the past year-and-a-half, but others have argued that Monday's sell-off amounted to an over-reaction.

"DeepSeek now seems to show that we can do more with existing computing power than previously thought," analysts at ING said in a note to clients. "The market, therefore, needs to price in a slower adoption rate of high-performance computing and revenues of companies selling AI models."

4. DeepSeek's model looms over tech earnings

The emergence of Hangzhou-based DeepSeek's AI model comes ahead of a raft of quarterly results from mega-cap tech companies this week.

Even before DeepSeek roiled global markets, investors were keen for Silicon Valley's largest tech companies to provide more insight into their already ballooning AI budgets.

Many tech industry executives have previously argued that the spending was necessary to avoid falling behind in the AI arms race, which is projected to revolutionize a variety of aspects of modern life.

Four of the so-called "Magnificent 7" tech companies, which have been heavily responsible for recent stock market gains, are due to report this week. Meta (NASDAQ:META), software giant Microsoft and electric vehicle titan Tesla (NASDAQ:TSLA) are scheduled to post results on Wednesday after the closing bell on Wall Street, followed by iPhone-maker Apple (NASDAQ:AAPL) on Thursday.

5. OpenAI's Altman on DeepSeek

Sam Altman said on Monday the DeepSeek AI model, known as R1, was impressive for what it could deliver at its current cost, but that OpenAI planned to deliver better models.

Altman said more computing power still remained important as OpenAI executed its research plans, and that demand for AI is likely to remain strong

“Deepseek's R1 is an impressive model, particularly around what they're able to deliver for the price,” Altman said in a post on X. The OpenAI CEO added that the company is “excited to continue to execute on our research roadmap and believe more compute is more important now than ever before to succeed at our mission”.

This article first appeared in Investing.com