Deepseek Sales reminds investors of the biggest earnings story that holds the stock market up

On By Littum

Monday’s Swift sale in the markets serves as a reminder of not only what has been the driving force in the bull market so far, but also what investors expected to come in 2025. It’s about Big Tech earnings.

New developments from Chinese Artificial Intelligence Deepseek triggered the route when the investor’s concerns about brewing competition in the AI ​​room for NVIDIA (NVDA) and other major tech names got a break in the US AI trade.

The Nvidia share fell more than 11%. Meanwhile, “Magnificent Seven” members Microsoft (MSFT), Alphabet (Googl, Goog), Meta (Meta), Amazon (Amzn) and Tesla (TSLA) were all away from 2% or more in early trade. Broadcom (AVGO), another big player in the AI ​​room, was more than 12%down.

“When expectations are high, a skeptical headline can turn the market off its axis,” Ritholtz Wealth Management Chief Investment Strategist Callie Cox wrote in a note on Monday. “That’s exactly what we see today.”

A slowdown in Big Tech’s rapid earnings growth has been a risk to the market that strategists have been talking about for more than a year. With index assessments near high decades and the 10 largest warehouses that make up almost 40% of the S&P 500, strategists have claimed that the rapid rally in stocks is increasingly on thin ice.

But unlike other risks such as higher interest rates or sticky inflation, there has not been a clear story as to why the extraordinary large technological earnings growth history would collapse. For the time being, this weekend’s Deepseek AI model launch seems to be a tangible reason for investors to question whether the high earnings expectations will really follow through.

In 2024, magnificent seven earnings surpassed the rest of the S&P 500 index by 30 percentage points per Research from Goldman Sachs. And while this margin is expected to slow down in the coming year, which causes some to require an expansion of stock market returns, great technical earnings growth remains an important pillar in the bull marketing.

The “magnificent seven” shares are expected to grow earnings by 21.7% in the fourth quarter compared to 9.7% earnings growth expected for the other 493 tech shares. The growth speed for the previous year is expected that the “magnificent seven” will be slow in the first quarter before accelerating once again to earnings growth year by year of more than 24% in the third quarter.

As Venu Krishna, head of the US stock strategy at Barclays, pointed out in his prospects of 2025, considering the great earnings growth that is expected for Big Tech throughout the year, the group is likely “as critical of an EPS growth driver for S&P 500 as The group was (in 2024).