Market Reactions to the DeepSeek Market Sell-Off
Published January 28, 2025
Global Chief Investment Officer
Head of Equity Strategy
Director, Research
Key Takeaways
- The release of DeepSeek’s open-source AI chatbot caused a sharp sell-off in Nvidia (-17%) and Broadcom (-17.4%), shifting market sentiment in favor of AI-users like Apple (+3%) and Salesforce (+4%) over companies investing more heavily in AI infrastructure
- WisdomTree’s DGRW, which has under-weight exposure to Nvidia and Broadcom, outperformed the S&P 500 year-to-date after Monday's market volatility, highlighting the benefits of diversification in quality and growth screens.
- We believe Value-focused strategies are gaining favor over growth in 2025, with forward price-to-earnings (P/E) analysis showcasing resilience in funds like WTV amid significant tech sector adjustments.
Let’s review the market’s reaction to the release of a high-performing large language model chatbot from the Chinese AI start-up DeepSeek. Its entry has suddenly readjusted growth expectations for Nvidia and the presumed dominance of the mega-cap Western tech companies leading in the AI arms race.
Figure 1 sorts WisdomTree strategies by Magnificent 7 exposure. Much of this market move was semiconductor-specific; growth indexes and mandates caught a sea of red, while many value concepts finished the day up.
But even among growth mandates there were notable winners. Our cloud computing Fund (WCLD) caught a bid, which you wouldn’t expect in a session where so many big names were sold hard.
The market reacted positively to businesses that have chosen to build on top of others’ AI models instead of bursting their own capital expenditure budgets. DeepSeek’s chatbot (currently free and open-source) has possibly shown a cheaper path to incorporating AI. Apple (+3.18% on the day) and Salesforce (+3.96%) are two notable early winners.
Figure 1: Monday Session Performance, by Mag 7 Exposure
Sources: WisdomTree, FactSet, S&P, Russell. 1/27/25 session returns. Index and Fund weights as of 1/24/25. You cannot invest directly in an index. Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted.
Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For most recent month-end and standardized performance, click the respective ticker. Performance of less than one year is not annualized. WTV, DHS, AIVL, USMF, DLN, EPS, DGRW, QGRW.
For definitions of indexes in the chart, please visit our glossary.
Figure 2: Year-to-Date, DGRW vs. S&P 500
Sources: WisdomTree, FactSet, S&P, 12/31/24–1/27/25. You cannot invest directly in an index. Current performance may be lower or higher than quoted. Performance is historical and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For most recent month-end and standardized performance, click the respective ticker. Performance of less than one year is not annualized. DGRW
In Figure 3, we heat-mapped our broad U.S. equity Funds, sorting from the lowest forward price-to-earnings ratio, WisdomTree U.S. Value Fund (WTV), to the highest, WisdomTree U.S. Quality Growth (QGRW). Also sorted by color are the year-to-date returns, which are skewing toward value over growth.
Figure 3: Year-to-Date, Investing Style Returns
Sources: WisdomTree, FactSet, S&P, as of 1/27/25. You cannot invest directly in an index. Current performance may be lower or higher than quoted. Performance is historical and does not guarantee future results.
Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For most recent month-end and standardized performance, click the respective ticker. Performance of less than one year is not annualized. WTV, DHS, AIVL, USMF, DLN, EPS, DGRW, QGRW.
For definitions of indexes in the chart, please visit our glossary.
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Important Risks Related to this Article
There are risks associated with investing, including the possible loss of principal. Funds focusing their investments on certain sectors increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time. Please read each Fund’s prospectus for specific details regarding the Fund’s risk profile.
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About the contributors
Global Chief Investment Officer
Jeremy Schwartz has served as Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Behind the Markets podcast. Jeremy is a member of the CFA Society of Philadelphia.
Head of Equity Strategy
Jeff Weniger, CFA, has been with WisdomTree since 2017 and serves as the Head of Equities. He shapes the firm’s market outlook through a combination of macroeconomic and fundamental analysis. With more than two decades in investment strategy, Jeff is known for his work on market cycles and valuations. Before joining WisdomTree, Jeff was with BMO Private Bank and BMO Global Asset Management for 11 years. At BMO, he sat on the firm’s Asset Allocation Committee and co-managed ETF model portfolios across the U.S. and Canada. In 2013, at age 32, he became the youngest member of BMO’s Global Investment Forum. When he left BMO to come to WisdomTree, his final role was Director, Senior Strategist in the Office of the CIO in 2017.
Jeff is a frequent television guest on networks such as CNBC, Bloomberg, and Schwab, with regular print appearances in The Wall Street Journal, Barron’s and Reuters. He also appears weekly on the Behind the Markets podcast and is a regular on SiriusXM’s The Business Briefing. On X, Jeff has developed one of the larger followings in financial media. He earned a B.S. in Finance from the University of Florida and an MBA from the University of Notre Dame. He has held the CFA charter since 2006.
Director, Research
Matt Wagner joined WisdomTree in May 2017 as an Analyst on the Research team. He currently serves as a Director, where he supports the creation, maintenance, and reconstitution of WisdomTree’s indexes and actively managed ETFs. Matt began his career at Morgan Stanley, working as an analyst in Treasury Capital Markets from 2015 to 2017, focusing on unsecured funding planning, execution, and risk management. He graduated magna cum laude from Boston College in 2015 with a B.A. in International Studies, concentrating in Economics. In 2020, he earned a Certificate in Advanced Valuation from NYU Stern. He is also a Chartered Financial Analyst (CFA) charterholder.