Tech Stocks Crash as China’s DeepSeek Rattles AI Giants

A surprise challenger from China has just rattled Wall Street’s biggest tech names. On Monday, the S&P 500 fell sharply, led by a massive 16.9% drop in Nvidia stock, after Chinese AI start-up DeepSeek launched a model that could rival American giants at a fraction of the cost.

While the broader market held steady, the fallout for AI-related stocks was brutal, dragging down the Nasdaq and creating ripple effects across global tech shares.

Markets in Motion: Nvidia Dragged the Index Down

• S&P 500 Fell 1.5%, or 88.96 points, to 6,012.28 
• Nasdaq Composite: Dropped 3.1% or 612.47 points to 19,341.83 
• Dow Jones: Rose 289.33 points (+0.7%) to 44,713.58 

🔗 S&P 500 Performance – MarketWatch
🔗 Nvidia Stock Profile – Yahoo Finance

What Is DeepSeek and Why Does It Matter?

DeepSeek, a Chinese AI firm, launched a large language model (LLM) that experts say rivals systems from OpenAI, Google DeepMind, and Meta but at drastically lower costs.

• DeepSeek’s app hit the top of Apple’s App Store in the U.S. 
• Its emergence has sparked fears of cost-based disruption in the AI race 
• The company reportedly trained its model with limited access to high-end chips, which are restricted under U.S. export bans 

Dan Ives, analyst at Wedbush Securities, commented:

“It remains to be seen how DeepSeek bypassed chip restrictions but the market reaction shows how seriously it's being taken.”

Global Tech Selloff

The disruption reverberated across the globe:

• ASML (Amsterdam): -7% 
• SoftBank (Tokyo): -8.3%, despite recent AI partnership announcements 
• Constellation Energy (U.S.): Crashed 20.8% amid concerns about data center-related investments tied to AI growth 

🔗 ASML NV – Bloomberg Company Profile
🔗 SoftBank AI Investments – CNBC

AI Euphoria Meets Market Reality

Before Monday, Nvidia had become one of the market’s darlings:

• The stock had surged from under $20 to over $140 in two years 
• It had helped fuel the rise of the “Magnificent Seven”: Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla 

Now, these tech giants who contributed to over 50% of the S&P 500’s 2024 returns are seeing their valuations tested.

Zuckerberg’s comments last week underscored the AI craze:

“Meta expects to spend up to $65 billion on AI in 2025,” he said, noting a massive data center project in Louisiana.

But even those heavy bets weren’t enough to insulate Big Tech from the DeepSeek shock.

Nvidia’s Worst Day Since COVID

Nvidia’s 16.9% plunge marked its worst single-day loss since the March 2020 pandemic crash. And because the S&P 500 is weighted by market cap, millions of 401(k) investors felt the hit even if they didn’t directly own Nvidia shares.

🔗 Understanding S&P 500 Index Funds – Investopedia

Investors Flee to Bonds as Uncertainty Rises

With tech stocks tanking, investors shifted toward safe-haven assets:

• The 10-year Treasury yield fell to 4.52% from 4.62% 
• Analysts say fears of higher inflation due to tariffs and supply issues are also influencing bond markets 

Caution Ahead of Big Tech Earnings

The pressure is mounting. This week, Apple, Microsoft, Meta, and Tesla are scheduled to report their Q4 2024 earnings.

Brian Jacobsen, chief economist at Annex Wealth Management, advised calm:

“The news from China could be overstated we may see a bounce. But if it's true, it opens up a new chapter in AI investing.”

Final Thoughts

Monday’s selloff is a stark reminder of how fragile the AI-fueled rally has become. The rise of DeepSeek a previously unknown player shows that disruption can come from anywhere, especially in a field evolving as rapidly as AI.

While the long-term outlook for companies like Nvidia, Meta, and Microsoft remains strong, investors should brace for more volatility as the global AI race heats up.

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