DeepSeek's Budget AI Spooks Global Tech

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Australian shares dipped 0.1% on Tuesday, with the S&P/ASX 200 index falling 9.8 points to 8,399.1, as Technology and Data Centre stocks were hit by concerns over Chinese startup DeepSeek's new A.I. R1 model, which sent ripples across global markets.

So, what’s the fuss about DeepSeek? DeepSeek is a Chinese A.I. start-up that released its R1 model last week, which reportedly matches or exceeds the performance of leading AI models while using less powerful chips and costing just $5.6 million to train.

The development sparked concerns about U.S. tech companies' massive A.I. investments, triggering a major selloff in U.S. tech stocks, including Nvidia, Broadcom, and Microsoft.

Locally, data centre operators saw major selling, with NextDC dropping 7.3%, Goodman Group falling 8.2%, and DigiCo plunging over 11%. The sell-off was triggered by fears that DeepSeek's more efficient AI model could challenge U.S. competitors.

Energy (-2.10%) stocks also declined on speculation that DeepSeek's lower electricity requirements could reduce power demand. Origin Energy (-3.43%) fell, AGL (-2.31%) dropped, while coal producers Yancoal (-3.66%) and Whitehaven Coal (-3.97%).

Company News

• Bellevue Gold (-1.34%) remains confident of achieving its 90,000-ounce gold production target for H1 2025, citing successful drilling operations and infrastructure investments. The company will no longer process low-grade open pit stockpiles in the second half.

• EBR Systems (+7.95%) has secured an 11-year lease for a new California facility to expand its manufacturing, corporate, and R&D operations by early 2026, aiming to meet the growing demand for its WiSE heart-pacing technology.

• Fortescue (+0.37%) has launched a takeover bid for Red Hawk Mining (+44.51%) at $1.05 per share, valuing the company at $172 million, with a potential increase to $1.20 if 75% ownership is achieved within seven days. Red Hawk's board endorsed the offer, representing a 29% premium to Red Hawks's 30-day volume weighted average price.

• Myer (-2.51%) finalised its merger with Premier Investments' fashion brands, including Dotti, Jay Jays, and Just Jeans, creating an expanded retail network of 783 stores with $4 billion in annual sales. Premier received 890.5 million new shares in the deal.

• Newmont (-0.71%) has agreed to sell its Canadian Porcupine mine to Discovery Silver for up to $US425 million ($675.4 million), including $US200 million in cash and $US75 million in equity. The deal, part of Newmont's non-core asset divestment plan, is expected to close in H1 2025.

   

Wall Street

U.S. markets fell sharply on Monday, with the S&P 500 (-1.46%) falling while the Nasdaq (-3.07%) plunged in its biggest daily decline since December. The tech selloff was triggered by the release of DeepSeek, a Chinese A.I. assistant tool that reportedly uses cheaper chips than its U.S. counterparts. The Dow Jones (+0.65%) bucked the trend, thanks to gains from United Health (+2.07%) and Home Depot (+2.50%)

The release of Deep Seek hit semiconductor stocks particularly hard, with the sector falling 9.2%, in its largest single-day drop since March 2020. Nvidia led the decline, plunging 17% and erasing $593 billion in market value - the largest one-day loss for any company in Wall Street history, doubling its previous record drop from September.

Other semiconductor companies that felt the pinch included Broadcom (17.40%) and Micron (11.67%), while the VanEck Semiconductor ETF fell by 9.83%.

S&P500 Sector Performance

Economic Data

• Australia’s NAB Business Confidence index increased to -2 in December 2024 from -3 in the prior month, marking the second straight month of negative prints.

• The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, in line with market consensus.

• U.S. New Home Sales rose 3.6% from the previous month to a seasonally adjusted annualised rate of 698,000 in December 2024.

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🌎️ Around The Globe

• Activist investor Ancora Holdings has acquired a stake in U.S. Steel and is opposing its merger with Nippon Steel, seeking to remove CEO David Burritt and nominate nine new directors to the twelve-person board, including former Stelco chief Alan Kestenbaum, according to the Wall Street Journal.

• President Trump revealed that Microsoft is in discussions to acquire TikTok, expressing interest in seeing competitive bidding for the app. Microsoft declined to comment, while TikTok and its parent company, ByteDance, have not responded to inquiries.

• Meta plans to invest $60-65 billion in AI infrastructure for 2025, a 70% increase from 2024, with CEO Mark Zuckerberg announcing plans to deploy 1GW of computing power while predicting Meta AI will reach 1 billion users this year.

• Novo Nordisk shares rose after announcing its experimental obesity drug amycretin helped patients lose 22% of their weight over 36 weeks, compared to 2% with placebo.

• Target announced it would discontinue several diversity, equity and inclusion initiatives (DEI), including its three-year DEI goals and programs supporting minority-owned businesses, while also ending participation in external diversity reporting.

• Universal Music Group and Spotify have signed a new multi-year licensing agreement covering recorded music and publishing rights, with direct licensing established across multiple countries for Spotify's current product portfolio.

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*1-year, 3-year and 5-year returns are calculated as of December 31, 2024.

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