DeepSeek app on mobile
The FTSE 100 index added 26 points at 8,530 despite tech sell-off in US / IMage source: Adobe

The Nasdaq Composite and benchmark S&P 500 indices were knocked-off course this week by a relatively unknown Chinese AI (artificial intelligence) upstart DeepSeek, which has developed a LLM (Large Language Model) for a fraction of the cost of traditional AI models.

Semiconductor chips stocks and AI-related energy names saw heavy selling as investors reassessed the outlook for spending on high-end chips and power demand for AI data centres.

Shares in stock market darling Nvidia (NVDA:NASDAQ) which is enabling the AI revolution lost a whopping $590 billion of market value on Monday (27 January).

The small-cap Russell 2000 index and Dow Jones indices were relatively unscathed by the turmoil and ended the week higher.

The DeepSeek story almost overshadowed the Federal Reserve’s interest rate meeting on 29 Jan where the central bank paused cutting rates as widely expected.

Chair Jerome Powell said that while the economy remains in good shape, inflation needs to show consistent signs of slowing before further rate cuts could be considered. Markets are pricing in two rate cuts for 2025.

TECHNOLOGY SECTOR

After a big jolt for the Nasdaq index at the start of the week off the back of the emergence of Chinese AI innovation DeepSeek, earnings from four of the Magnificent Seven struck a broadly reassuring tone. 

Meta Platforms (META:NASDAQ) posted better-than-expected quarterly numbers. It reported revenue of $48.4 billion for the fourth quarter of 2024, well above analysts' estimate of $47 billion. But forward guidance which suggested first-quarter numbers may come in below expectations did temper some of the enthusiasm as the company continued to commit to significant AI-related investment.

Microsoft (MSFT:NASDAQ) came under some pressure as it posted slightly slower than anticipated growth for its Azure cloud computing arm. At a group level earnings per share and revenue were a smidge ahead of forecasts at $3.23 and $69.6 billion respectively.

Tesla (TSLA:NASDAQ) earnings, something of an outlier from the rest of the Magnificent Seven, came in below expectations, the fifth time this has happened in the last six quarters. Although some big promises on the potential for Tesla in coming years from founder and CEO Elon Musk helped keep investors onside.

Optically Apple's (AAPL:NASDAQ) earnings left shareholders with plenty to celebrate, the company enjoyed its best quarter ever in terms of revenue and earnings. It has now beat earnings expectations for eight consecutive quarters.

However, there is a lingering perception that Apple is behind the curve on AI, with the company only having rolled out AI services in the English language so far. This may partly explain the company's struggles in China where competition is fierce from domestic names like Huawei and Xiaomi. 

ROYAL CARIBBEAN CRUISES

Royal Caribbean Cruises (RCL:NYSE) impressed investors this week with its shares hitting an all-time high, after the world’s second largest cruise operator reported better-than-expected fourth quarter earnings on 28 January.

Over the past year the cruise operator’s shares have gained a magnificent 115% to $274.

The company posted 2024 EPS (earnings per share) of $10.94 and adjusted EPS of $11.80 due to ‘stronger pricing on close-in demand and continued strength in onboard revenue.’The positive news didn’t stop there as Royal Caribbean expects strong demand for its holiday experiences to continue throughout 2025, and the company upped guidance.

Adjusted EPS is expected to be in the range of $14.35 to $14.65 per share (including a headwind of $0.65 related to foreign exchange and fuel rates).

Royal Caribbean also announced the launch of premium brand ‘Celebrity River Cruises’ – a luxury river cruise line which will sail in Europe from 2027.These results highlight that customers are still willing to fork out on cruise travel despite household budgets being squeezed elsewhere.

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Issue Date: 31 Jan 2025