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The S&P 500 has rebounded from the heavy losses skilled on Monday (27 January). However the world’s most generally adopted share index isn’t out of the woods simply but.
Whereas volatility has calmed because the week’s rolled on, concern over tech shares’ profitability — and extra particularly these within the synthetic intelligence (AI) house — stays on the entrance of buyers’ minds.
Might the S&P 500 be about to crash?
Deep bother?
To recap, the S&P 500 nosedived on Monday following contemporary information on DeepSeek, a Chinese language startup that’s growing its personal AI system to rival these developed within the US.
DeepSeek’s been round for some time, however efficiency knowledge from its R1 mannequin has simply blown trade specialists’ socks off. Testing knowledge reveals efficiency similar to that of current AI programs like OpenAI’s o1. Nonetheless, DeepSeek has achieved this at considerably decrease price.
If these findings maintain, there could also be important implications for the worldwide AI panorama. From offering direct competitors to established system operators like OpenAI and Google, to impacting demand for high-power pc chips, DeepSeek’s developments may drive main modifications in market dynamics, and with it expectations of hovering earnings throughout the US tech sector.
What subsequent?
Given the S&P 500’s giant weighting of expertise shares, it’s straightforward to see why the index slumped. Firstly of 2025, tech giants like Nvidia, Microsoft, Apple, Meta, and Alphabet made up simply over 30% of the S&P’s total market capitalisation.
Their share value beneficial properties final yr, which had been constructed on hopes of booming AI-related earnings, have come below critical scrutiny. Even after Monday’s washout, many tech names nonetheless command sky-high valuations.
But regardless of this, the possibilities of a full-blown market crash look (for the second a minimum of) fairly low. Disruption has lengthy been a standard theme throughout the tech sector. As well as, R1 has thus far has not reached the substitute common intelligence (AGI) stage, and may solely be used for slender duties. It’s doable that disruption to present AI assumptions won’t be as extreme as thought.
It’s additionally vital to keep in mind that DeepSeek’s mannequin may increase earnings and money flows throughout the S&P 500 if it revolutionises AI improvement.
For system builders, the expense of growing and operating these programs could also be decrease shifting forward. In the meantime, giant swathes of the S&P 500 may benefit from extra inexpensive AI options that considerably carry down prices.
Right here’s what I’m doing
I proceed to stay optimistic over the US tech sector and, by extension, the S&P 500. In addition to AI, different tech phenomena like cloud and quantum computing, autonomous automobiles, and cybersecurity provide important progress alternatives.
However moderately than placing all my eggs in the identical basket, I feel a diversified method is one of the simplest ways to take a position. The iShares S&P 500 Data Expertise Sector ETF (LSE:IUIT) is a high exchange-traded fund (ETF) I maintain in my very own portfolio and suppose buyers ought to contemplate.
With money unfold throughout 69 firms, it provides me publicity to all the progress alternatives talked about above. These embrace semiconductor producers, software program builders, IT consultants, and communications gear suppliers.
These are early days within the AI revolution, so a crash that pulls this fund (and the broader S&P 500) decrease can’t be dominated out. However on steadiness, I feel the outlook for the US tech trade stays extraordinarily shiny.