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Chinese AI Breakthrough Sparks Tech Stock Plunge: Magnificent 7 and Hedge Funds React

Chinese AI Breakthrough Sparks Tech Stock Plunge: Magnificent 7 and Hedge Funds React

Chinese AI Firm DeepSeek Triggers Major Sell-Off in US Tech Stocks

The US tech market experienced a significant downturn as Chinese AI company DeepSeek’s open-source AI models sent shockwaves through the industry. Major tech giants, including Nvidia, Tesla, and Alphabet, saw substantial declines in their stock values, resulting in hundreds of billions of dollars wiped from the market.

The impact was particularly pronounced among the so-called Magnificent 7 stocks, which have been the primary drivers of S&P 500 growth in recent months. These companies, which include some of the largest tech firms in the United States, bore the brunt of the sell-off triggered by DeepSeek’s releases.

In response to the market volatility, hedge funds have been steadily reducing their exposure to the Magnificent 7 stocks since June. Goldman Sachs reported that hedge fund involvement in these stocks has reached its lowest point since mid-2023. Current data indicates that the Magnificent 7 now represents approximately 15.5% of total US net exposure, a significant drop from 21% in June.

Regulatory filings, while providing delayed insights, reveal various strategies employed by hedge funds in anticipation of market shifts. Some funds managed to exit positions ahead of the downturn, potentially mitigating losses. Notable moves include SurgoCap Partners and Stanley Druckenmiller’s family office reducing their holdings in Microsoft and Nvidia, while Philippe Laffont’s Coatue adjusted its portfolio by selling Nvidia and Meta shares but increasing stakes in Microsoft, Amazon, and Alphabet.

As the market grapples with this new landscape, analysts are closely monitoring the Magnificent 7 stocks. With major companies like Microsoft, Meta, Tesla, and Apple preparing to report earnings, the market’s reaction to these reports will be crucial in determining the future trajectory of these influential stocks.

The tech sector’s response to DeepSeek’s open-source AI models underscores the global nature of the AI race and its potential to reshape market dynamics rapidly. As the situation continues to evolve, investors and industry watchers alike will be keenly observing how US tech giants adapt to this new competitive landscape.