Market snapshot: Nvidia in the eye of the storm

A frenzied market session in the US shook some trees as investors scrambled to assess the overseas threat to a previously unassailable technology position.

Unsurprisingly, AI poster child NVIDIA Corp (NASDAQ:NVDA) was caught in the eye of the storm. Its shares plunged by 17% with some further weakness implied by the futures price at this very early stage ahead of trading today.

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The DeepSeek threat has certainly ruffled feathers and even if this particular storm subsides, other challenges to the US AI dominance could follow. This is a burgeoning sector which has powered much of the US market's gain over the last couple of years, such that the unease is understandable. 

Even so, Nvidia shares remain higher by 90% over the last year even after yesterday’s torrid outing and the next few trading sessions will be pivotal in deciding where the correct level might be for AI shares more broadly.

Related stocks also followed suit as some investors chose to take some money off the table, with declines of over 17% for Broadcom Inc (NASDAQ:AVGO) and 6% for Advanced Micro Devices Inc (NASDAQ:AMD), while Microsoft Corp (NASDAQ:MSFT) dropped by a more restrained 2%. In contrast, there was some resilience from parts of the “Magnificent Seven” which actually dodged the bullets, with gains of 3% and 2% for Apple Inc (NASDAQ:AAPL) and Meta Platforms Inc Class A (NASDAQ:META) respectively.

These stocks will remain in sharp focus as the week plays out, with updates due from Meta Platforms, Microsoft, Tesla Inc (NASDAQ:TSLA) and Apple. Given the domination which has resulted in this small group now accounting for around a third of the S&P500 and 20% of the MSCI World indices – and indeed more than half of the S&P500’s total return last year – the accompanying comments will be scrutinised as well as the numbers themselves for signs of management reaction.

At this stage, the longer-term investor will likely be watching developments rather than rushing for the exit. Indeed, there was evidence of rotation rather than sheer retreat as investors sought solace in more defensive areas, such that the more traditional Dow Jones ended the day some 0.7% higher. More broadly, the crucial session over the remainder of the week will give a much clearer picture on sentiment. In the meantime, the Dow Jones has now added 5.1% for the month, with the S&P500 and Nasdaq marginally keeping their heads above water with gains of 2.2% and 0.2% respectively. 

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The Lunar New Year holiday across parts of Asia led to thin trade in most markets, which will remain a feature this week. In Japan, technology stocks continued their decline following the moves from Wall Street, with falls of 6% for SoftBank and 7% for Hitachi. The lighter levels of trading will exacerbate price movements, with the dust unlikely to settle until normal trading resumes.

UK markets displayed their defensive characteristics at the open and nudged higher as business largely carried on as normal. While the relative lack of exposure to pure technology has been something of a drag on prospects over recent years, this can equally come into its own during times of stress elsewhere.

Evidence of rotation elsewhere from growth to value stocks could also provide something of a tailwind if the current conditions persist, underpinned by an index whose constituents are largely mature, cash generative and stable.

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Stock specifically, there was some early strength in Rentokil Initial (LSE:RTO) after a well-received trading update, while Smiths Group (LSE:SMIN) slipped after revealing that it had been the subject of a cybersecurity incident, which had now been isolated and replaced by business continuity plans.

More broadly, some weakness in mining stocks was offset by a gainers board peppered with defensive names such as National Grid (LSE:NG.) and Halma (LSE:HLMA), leaving the FTSE100 ahead by 4.4% so far this year in contrast to some of its often racier overseas counterparts.