Nasdaq futures fall amid DeepSeek AI breakthrough

On Monday, Nasdaq futures experienced a significant decline, dropping by more than 4%. If the index closes with such a loss, it would represent the most substantial single-day sell-off since September 2022. This downturn comes as investors reassess the value of leading tech companies, often referred to as the 'Magnificent 7', which includes giants like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Meta (NASDAQ:META). Alphabet, with its $2.4 trillion market cap, currently trades near its 52-week high and maintains a "GREAT" financial health score according to InvestingPro analysis.

The reassessment has been prompted by the emergence of DeepSeek, a Chinese artificial intelligence company. DeepSeek's app has rapidly gained popularity following the release of a free-to-air model last week. This model is notable for utilizing less data and operating at a lower cost compared to traditional AI models offered by established tech firms.

DeepSeek's innovative approach suggests that state-of-the-art AI models might not require extensive computing power, challenging the current industry paradigm. This could have implications for the revenue and valuation of companies that develop AI models and the hardware vendors that support them. For example, ASML (AS:ASML) currently trades at a price over earnings per share multiple of 33.6x, and Nvidia (NASDAQ:NVDA) at 48.5x, while Alphabet maintains a more moderate P/E ratio of 25.76x with strong revenue growth of 14.38%. These valuations could be affected if the market adjusts to a slower adoption rate of high-performance computing due to DeepSeek's advancements. For deeper insights into tech valuations and comprehensive analysis, InvestingPro subscribers can access detailed financial health metrics and Pro Research Reports for over 1,400 US stocks.

Despite the current market reaction, the situation remains fluid. There is still uncertainty surrounding the exact workings of DeepSeek's technology, its safety, and its robustness. As such, while the 'Magnificent 7' face challenges today, the market's perspective on these companies could shift rapidly as more information becomes available. Investors watching Alphabet should note its upcoming earnings report in 8 days, which could provide crucial insights into the company's AI strategy and market position.

In other recent news, Alphabet Inc. has been the subject of several important developments. Needham analysts recently increased their price target for Alphabet shares to $225, maintaining a Buy rating. This comes as Alphabet's Cloud business shows significant strength, with fourth-quarter 2024 Cloud revenue estimates increased by 7%. The firm also projects Alphabet's total revenue for the fourth quarter of 2024 to reach $96.4 billion, a 12% year-over-year increase, and net revenue to reach $81.5 billion, up 13% year-over-year.

Truist Securities has also maintained a Buy rating on Alphabet shares, expecting low double-digit revenue growth driven by robust engagement in Search and YouTube, as well as steady growth in its Cloud business. In other developments, Alphabet and Apple (NASDAQ:AAPL) are under investigation by the UK's Competition and Markets Authority (CMA) over potential dominance in mobile services. Google has committed to tackling fraudulent reviews, implementing sanctions to discourage businesses from profiting from deceitful reviews.

In partnership news, Samsung Electronics Co (F:SAMEq). is collaborating with Google to develop augmented reality glasses. Google's CEO Sundar Pichai aims to expand the user base of the company's Gemini AI chatbot to 500 million by the end of 2025. These developments represent recent changes affecting the operations and market position of Alphabet.

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