Technology shares steadied on Tuesday, led by a modest recovery in Nvidia (NVDA.O) after its record-breaking wipeout in market value in a rout sparked by a low-cost Chinese artificial intelligence model that may threaten the dominance of US rivals.

Shares in Nvidia, a leader in the AI chip market, fell 17 percent on Monday, wiping $593 billion from its market value - a record one-day loss for any company - and dragged US stocks lower.

By Tuesday, Nvidia shares were up around 5 percent in premarket trading, while those in Oracle (ORCL.N) were up 3.4 percent and Marvell Technology (MRVL.O) rose 3.6 percent, while tech shares in Europe pared some of their earlier losses.

Monday’s sell-off was prompted by the release of a free AI assistant launched by China’s DeepSeek last week that the startup said uses less data at a fraction of the cost of services currently available. That garnered attention worldwide, although scepticism over DeepSeek’s cost claims lingers.

OpenAI CEO Sam Altman called it an “impressive model”, while US President Donald Trump called it “a wakeup call for our industries.”

“We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!” Altman, the head of the AI firm behind ChatGPT, said in a social media post.

DeepSeek bursting onto the AI scene, seemingly out of nowhere, has upended the industry’s perception that China was years behind its bigger US rivals.

Investors have dumped tech stocks everywhere, with ripples felt from Tokyo to Amsterdam to Silicon Valley.

Marc Halperin, co-head of European equities at Edmond de Rothschild in Paris, said it could take a few days to determine whether this week’s tech rout was “just a blip or a major change in market sentiment and positioning.”

“If we do see a market correction, it could unfold quickly and with significant consequences. This could be a problem for retail investors. We’ve seen a lot of money poured into names like Nvidia, for instance,” he said.

Data analytics firm Vanda Research said on Tuesday that retail investors had taken advantage of the selloff in Nvidia to snap up a record net $562.2 million in the company's stock on Monday.

In Europe on Tuesday, shares in Dutch semiconductor company ASML (ASML.AS), which ended down 7.1 percent on Monday, edged up 0.8 percent, while those in Infineon (IFXGn.DE), rose 0.4 percent and German software group SAP (SAPG.DE), rose 0.2 percent following quarterly results.

In the US, Broadcom (AVGO.O), fell 17.4 percent on Monday, while ChatGPT backer Microsoft (MSFT.O), fell 2.1 percent and Google parent Alphabet (GOOGL.O), closed down 4.2 percent. The Philadelphia semiconductor index (.SOX),tumbled 9.2 percent - its deepest percentage drop since March 2020.

No Margin of Error

The selloff is a reminder of how much investor capital is concentrated in such a small number of stocks that trade at a large premium to the rest of the market.

Prior to Monday’s sell-off, Nvidia’s shares were trading at nearly 60 times the value of its earnings, compared with 22 for the entire S&P 500, according to LSEG data.

“What makes Monday’s tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said David Bahnsen, chief investment officer at The Bahnsen Group.

“The excessive weighting these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indices was a significant and under-appreciated risk issue.”

The hype around AI has powered a huge flow of capital into equities, inflating valuations and lifting stock markets to record highs, leading to an increase of around $10 trillion in the market value of “Magnificent Seven” companies since ChatGPT kicked off the AI boom in November 2022.

Enter the Robots

Investors have also borrowed massively to buy these pricey tech stocks. Monday’s selloff likely forced a lot of selling of other assets to cover any losses and, with far more algorithmic trading models active in the market, those moves would have been exacerbated, according to Rob Almeida, global investment strategist and portfolio manager at MFS International.

“When you get days like this, behind the scenes, what might be exacerbating it is leverage that might be being unwound and isn't being accounted for,” he said.

“So you combine all of these things, companies over-earning, maybe the AI supply chain being too full, valuations really expensive, huge leverage built up in the system and too many robots selling at the same time, and it all becomes obvious after the fact.”

A number of Big Tech companies, including Apple and Microsoft, report earnings this week and executives will be keen to assuage concerns about capital spending.

Deepseek app is seen in this illustration taken, on January 28, 2025.