A sign for the Toronto Stock Exchange is displayed at the entrance of the Exchange Tower in Toronto, as captured by Reuters.
Canada’s stock market felt the pressure Monday as the Toronto Stock Exchange’s S&P/TSX composite index fell 0.75% to 25,278.41, snapping a nine-session winning streak. The dip comes amid concerns surrounding a disruptive Chinese artificial intelligence (AI) model, which led investors to sell off shares in technology companies. This marks a reversal from the TSX’s impressive 3% gain earlier this year.
The technology sector bore the brunt of the decline, with a sharp 3.57% drop. Electronics manufacturer Celestica saw its shares plummet by over 27%, while crypto mining firm Bitfarms Ltd. faced a 14% dip. These losses mirrored a broader global sell-off in tech stocks, largely influenced by U.S. market trends.
The main trigger? Chinese startup DeepSeek, recently surpassed ChatGPT as the most downloaded free app in the U.S. Apple App Store. DeepSeek’s low-cost AI model, relying on affordable chips and minimal data, has raised doubts about the previously high valuations of U.S.-based AI companies. Many investors are now reevaluating their assumptions about AI’s reliance on powerful chips and energy-intensive operations.
This skepticism hit U.S. tech stocks hard, with Nasdaq tumbling 3.3%. AI powerhouse Nvidia saw its stock plunge 17%, erasing all gains made since October.
Allan Small, a senior investment advisor, noted the significant impact of DeepSeek's innovation. "It’s made investors rethink what’s needed for AI development. The assumption that powerful, expensive chips are necessary is now being questioned," he said.
Despite the turbulence, Canadian tech firms are expected to be less affected in the long term. Étienne Bordeleau-Labrecque, portfolio manager at Ninepoint Partners, explained, "The Canadian market isn’t heavily tied to the AI trend. TSX may hold up better compared to the Nasdaq, which AI has fuelled for the past two years."
The TSX’s decline comes after a strong month when the index gained nearly 3%, contributing to an 18% climb in 2024. These gains were partly driven by optimism around a potential change in Canadian administration, which could usher in more business-friendly policies.
Meanwhile, a proposed 25% tariff on Canadian goods has been paused, helping maintain investor confidence. Analysts believe that even if the tariff is reinstated, the Canadian market might remain resilient, especially if energy exports—Canada’s leading trade with the U.S.—are excluded from the policy.
