Payback time: Australian shares give shelter from the AI storm

For more than five years, the Australian sharemarket has underperformed Wall Street, thanks to the meteoric rise of the US tech market with its handful of industry giants.

So for the local bourse, Tuesday felt like a little taste of payback.

It is difficult to remember an event as left field as the emergence this week of a small unknown Chinese company disrupting, in this case, the AI industry. But the previously unknown DeepSeek has created a cut-price AI model that appears to challenge the established players – the massive chipmakers such as Nvidia feeding the industry that require billions of dollars of investments to develop their technology.

DeepSeek has found a way to disrupt America’s AI dominance.Credit: Bloomberg

On Tuesday, investors in Australian stocks experienced a rare moment of respite from their relative underperformance while the beasts of US tech struggled with their meltdown.

So large are the dominant US players in AI that their share price falls infected the big US benchmark indices, ravishing the Nasdaq and bloodying the S&P 500.

Australian shares were cushioned from the one-way rollercoaster ride in the US, and the S&P/ASX200 even managed to gain a little ground by lunchtime, thanks to the relative insignificance of our listed tech sector, though it slipped 0.1 per cent by the end of the day.

Some of Australia’s larger tech companies were infected; data centre landlord DigiCo’s share price took an 11.5 per cent hiding. Data centre operator NextDC was also buffeted, along with property trust Goodman Group, thanks to its recently expanded investment in data centres.

That said, our biggest tech group, software logistics company Wisetech, fell a modest 0.5 per cent, and others such as Xero and TechnologyOne completely escaped the carnage.

Australian investors, who for years have piled their savings and super into our big four banks and a couple of massive mining companies, with a smattering of Telstra, Wesfarmers and CSL shares in the mix, can watch the US tech meltdown from their armchair bunkers.

In a general sense, this is not a point of which Australian business should feel proud. Sure, the big IT names in the US that form much of the fabric of the now China-challenged AI space have been sucker-punched in the short term, and possibly in the medium term, but they have a future.

The issue which investors will have to grapple with is whether the immediate response to the emergence of China’s DeepSeek has been overdone, and to what extent the new kid on the block has undermined America’s AI players.

The likes of Elon Musk have already raised questions about DeepSeek, accusing the company of lying about its limited use of Nvidia chips.

Musk took to X to claim that DeepSeek “obviously” had more Nvidia chips than it had claimed.

Fellow sceptic Scale AI’s Alexander Wang said if Musk’s allegations were true, it would mean the Chinese model required far more power than it claims.

While it may be safer to be sceptical about the sceptics, it is fair to say that a bit more detail from China would be useful in informing investment decisions about America’s big AI players.

There have been massive fortunes made (and lost) by risk-takers who bet that black swan events such as the entry of DeepSeek elicit a sharemarket overreaction. For them, this will be seen as a buying opportunity. Nvidia, for example, which fell more than 16 per cent in a day, retraced a quarter of these losses at the end of the session and in after-hours trading.

Nvidia, a company which has come out of obscurity in the relatively short space of five years, is no stranger to share price volatility. While its shares gained 90 per cent over the past year, it experienced some big one-day falls during that time.

For its part, Nvidia painted the DeepSeek announcement in a more positive light, saying the Chinese company would require more of its chips.

The wildcard in how this plays out must be President Donald Trump, who is fresh from telegraphing his administration is turbo-charging investment in America’s AI capabilities. Just how long he will allow China to get around export control regulations that prevent certain US chips from being sold to China remains to be seen.

He won’t want to stand by while the US slips behind in its technology cold war with China.

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