The S&P 500 and Nasdaq hit their lowest levels in over a week on Monday, as the rising popularity of a low-cost Chinese AI model weighed heavily on shares of chipmaker Nvidia and other companies that have benefited from heavy investments in AI technology.
Chinese startup DeepSeek introduced a free AI assistant that it claims uses cheaper chips and less data, challenging the assumption that AI growth would primarily drive demand for components like chips and data centers.
DeepSeek’s AI Assistant climbed to the top spot on Apple’s App Store in the US, surpassing ChatGPT. This development raised concerns among investors about whether DeepSeek’s innovations could disrupt the broader AI industry, with Adam Sarhan, CEO of 50 Park Investments, noting that the market may begin to reassess the full scope of its potential impact.
“If it is something that can, then we have a situation where all these AI stocks and the market as a whole will be re-priced.”
Nvidia, the leading chipmaker for AI applications, saw its stock plummet 11.7%, while a broader semiconductor index fell 6.5%.
Eight out of the 11 S&P 500 sectors were in the red, with technology stocks leading the declines, dropping 4.5%. Microsoft, Meta Platforms, and Google-parent Alphabet each lost between 2.2% and 3.5%. Meanwhile, AI server manufacturers Dell Technologies and Super Micro Computer saw sharp drops of 7.2% and 8.9%, respectively.
Power companies, which are expected to face increased demand due to the energy needs of data centers fueling AI development, also took a hit. Vistra and GE Vernova were the hardest hit, each tumbling around 20%.
The Cboe Volatility Index, often referred to as Wall Street’s “fear gauge,” spiked to its highest level since December 20, climbing 4.57 points to 19.42.
By 09:43 a.m. ET, the Dow Jones Industrial Average had fallen 125.18 points, or 0.28%, to 44,299.07; the S&P 500 lost 108.20 points, or 1.77%, to 5,993.04; and the Nasdaq Composite dropped 606.43 points, or 3.04%, to 19,347.87.
Bucking the wider trend, AT&T rose 6.5% to an over three-year high after its fourth-quarter wireless subscriber growth surpassed expectations.
Big Tech will remain in focus, as Microsoft, Meta, Apple and Tesla – four out of the “Magnificent 7” companies that powered the bulk of last year’s gains – are set to report quarterly numbers later this week.
Global markets were also on edge as the U.S. and Colombia pulled back from the brink of a trade war on Sunday after the White House said the South American nation had agreed to accept military aircraft carrying deported migrants.
On the economic radar, the U.S. Federal Reserve is widely expected to hold its lending rate steady in its first interest-rate decision of the year due on Wednesday, while the December reading of the personal consumption expenditures (PCE) is scheduled for Friday.
Declining issues outnumbered advancers by a 1.13-to-1 ratio on the NYSE and by a 1.3-to-1 ratio on the Nasdaq.
The S&P 500 posted 16 new 52-week highs and no new lows while the Nasdaq Composite recorded 15 new highs and 40 new lows.
(With inputs from Reuters)