The tech sector has seen a dramatic shift recently, especially in the wake of rising selling pressures on AI-driven companies. Domestic stocks such as Anant Raj, Netweb Technologies India, and Zen Technologies experienced significant declines of up to 20% during a single trading session. This turbulence is largely attributed to the market’s reaction to DeepSeek, a new Chinese AI start-up that claims to be a free alternative to OpenAI’s ChatGPT. The concerns around DeepSeek’s potential to disrupt the AI market have triggered a ripple effect, affecting major players like Nvidia and, in turn, Indian stocks with links to Nvidia’s supply chain.
The DeepSeek Impact: Nvidia and Indian Tech Stocks in Trouble
Nvidia, one of the global leaders in semiconductor and AI technology, has taken a heavy hit recently. The company's shares plunged following the emergence of DeepSeek, which claims to achieve similar AI capabilities at a lower cost and with fewer chips. This threat to Nvidia’s dominance led to a staggering $589 billion loss in its market capitalization, the largest single-day drop in any company’s valuation. The fall in Nvidia’s stock has directly impacted Indian companies like Netweb Technologies, Anant Raj, and Zen Technologies, which are either manufacturing partners or key players in AI and data center infrastructure.
Netweb Technologies India, a partner to Nvidia, saw its shares fall by 10%, locking in the lower circuit limit at Rs 1,460.35. The stock has lost over 52% from its 52-week high of Rs 3,060. Similarly, Anant Raj, a prominent player in India's data center space, has taken a massive hit. Shares plummeted by 20% to Rs 534.45 on Tuesday, wiping out over one-third of its value in just two sessions. It’s now down almost 45% from its 52-week high. Zen Technologies, a company focusing on defense technology, also saw its stock crash by 14%, reflecting the widespread selling pressure on tech stocks.
Valuation Concerns: A Mismatch Between Growth and Price
G Chokkalingam, Founder of Equinomics Research, highlights that the correction in these growth-driven stocks is not unexpected. The steep valuations of these companies had long been a cause for concern. He points out that the earnings growth of these companies did not match their sky-high valuations. When stocks trade at 50 times their price-to-earnings (P/E) ratio, the company needs to show robust earnings growth of around 25-30% to justify such lofty valuations. When this growth doesn’t materialize, the market tends to punish these stocks harshly during sell-offs.
This correction is particularly noticeable in companies like Anant Raj and Netweb, where valuations had been stretched. While these companies are part of emerging sectors like AI and data centers, the market is becoming more discerning, focusing on the ability of these companies to meet their growth projections. The current dip, driven by external factors like the rise of DeepSeek, reflects the overvaluation concerns that analysts had been warning about for months.
Why Are Investors Nervous?
The broader tech sell-off in global markets has been exacerbated by fears of a slowdown in the AI boom. The $108 billion loss experienced by the world's richest people, led by Nvidia’s co-founder Jensen Huang, signals a broader market retraction in AI stocks. The fear of disruption caused by DeepSeek’s low-cost AI alternatives has sparked a wave of uncertainty, affecting not only Nvidia but also other companies tied to AI technologies.
These concerns have been felt especially in Indian markets, where companies like Anant Raj, Netweb Technologies, and Zen Technologies had been riding the wave of AI optimism. However, as Kranthi Bathini, Director of Equity Strategy at Wealthmills Securities, notes, the companies with futuristic business models and long-term cash flow expectations are currently suffering the most in this market downtrend. The rapid rise of stocks like Anant Raj in recent months now seems unsustainable, as the market adjusts to a more cautious outlook.
Should You Buy or Accumulate Now?
The question now is whether it’s the right time to buy or accumulate these tech stocks. For those with a high-risk tolerance, the current dip may present an opportunity to enter at a lower price point, especially if you believe in the long-term potential of AI and data center infrastructure in India. However, it’s crucial to remember that the valuations of these companies were significantly stretched, and there could be further downside if market sentiment doesn’t improve.
Investors should carefully assess the fundamentals of these companies and the broader market environment. If a company’s earnings growth doesn’t align with its valuation, as Chokkalingam suggests, there may be further corrections on the horizon. For more conservative investors, it may be prudent to wait for a clearer signal that the market has stabilized before considering an entry point.
The Bottom Line
The recent sell-off in AI-related stocks, triggered by DeepSeek’s emergence and Nvidia’s significant losses, has led to a sharp decline in the stock prices of companies like Anant Raj, Netweb Technologies, and Zen Technologies. While this may present a buying opportunity for some, it’s essential to consider the sustainability of their growth and whether their current valuations are justified. As the market continues to digest these developments, investors should remain cautious, keeping an eye on how these companies adapt to the changing dynamics in the AI space.
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