S&P/ASX 200 Index (ASX: XJO) tech shares are kicking off the shortened trading week with a whimper.
The ASX 200 has shrugged off earlier intraday losses to be up 0.06% at the time of writing. But the S&P/ASX All Technology Index (ASX: XTX) – which also contains some smaller technology focused companies outside of ASX 200 tech shares – remains down 0.75%.
Drilling down to some of the biggest listed Aussie tech companies:
- Shares in cloud-based software solutions provider WiseTech Global Ltd (ASX: WTC) are down 1.14% at $118.86. The WiseTech share price remains up 66% over 12 months.
- Shares in data centre operator NextDC Ltd (ASX: NXT) are down 6.1% at $14.93. NextDC shares are up 11% over 12 months.
- Shares in location-sharing software developer Life360 Inc (ASX: 360) are down 3.13% at $24.15. Life360 shares are up by around 213% over 12 months.
- Shares in accounting software provider Xero Ltd (ASX: XRO) are bucking the trend, having recouped earlier losses to trade for $174.62 apiece, up 1.16%. Xero shares are up around 60% over 12 months.
Which brings us back to our headline question…
Why are ASX 200 tech shares underperforming on Tuesday?
The headwinds battering ASX 200 tech shares today are blowing out of China and the United States.
As we reported here earlier today, the tech heavy Nasdaq Composite Index (NASDAQ: .IXIC) slumped 3.1% on Monday (overnight Aussie time) as investors digested the implications of DeepSeek. That's the start-up Chinese open-source artificial intelligence (AI) developer, which just launched a low-cost, low-power generative AI model.
With investors fearing DeepSeek could threaten US dominance in the booming AI space, not to mention the valuations of some leading tech companies, shares in generative AI chip maker Nvidia Corporation (NASDAQ: NVDA) crashed 16.9% on Monday.
The resulting US$589 billion (AU$939 billion) drop in Nvidia's market cap represents an unenviable record loss for a single day of trading in the US stock markets.
Is the technology stock rally over?
So, does this mean the rally in US tech companies and ASX 200 tech shares has come to an end?
Unlikely, according to BlackRock Investment Institute strategists Jean Boivin and Wei Li (quoted by Bloomberg).
"We think big tech can keep delivering on earnings, but misses could revive concerns that big capital spending on AI won't pay off – one of three triggers to dial down our pro-risk view," they noted.
G Squared Private Wealth's Victoria Greene said the DeepSeek development means investors should evaluate potential risks to their portfolios as well as look for opportunities. But she's "not convinced the bubble has burst".
According to Greene (courtesy of Bloomberg):
We are looking carefully at how the market progresses from here and if action needs to be taken to protect and shift portfolio allocations. We are not panickers, so tend to be buyers of big dislocations that are happening in tech, energy, and infrastructure today.
Charu Chanana, chief investment strategist at Saxo Markets, noted that US tech companies, and by connection ASX 200 tech shares, can't take their leadership in the AI field for granted.
"The emergence of China's DeepSeek indicates that competition is intensifying," Chanana said. "Although it may not pose a significant threat now, future competitors will evolve faster and challenge the established companies more quickly."
