The release of a less capital-intensive artificial intelligence model from China’s #DeepSeek sent a chill through the U.S. stock market Monday,
initiating a massive selloff underscoring the fragile backdrop behind the record market.
KEY FACTS
U.S. stocks got walloped Monday: The S&P 500 fell about 2% at 9:30 a.m. EST market open, and the tech-heavy #Nasdaq sank 3.5%, heading toward its worst percentage loss since Dec. 18 and third-worst day of the last two years.
Domestic leaders in AI headlined the stinging losses, as #Microsoft dropped 4% and #Tesla slipped 2%, while semiconductor chip architect #Nvidia dove 12% and other big chip stocks like #Broadcom and #Taiwan #Semiconductor Manufacturing Company fell more than 10% apiece.
The selloff stems from weekend panic over last week’s release from the relatively unknown Chinese firm DeepSeek of its competitive generative AI model rivaling #OpenAI, the American firm backed by Microsoft and Nvidia, and its viral chatbot #ChatGPT, with DeepSeek notably running at a fraction of the cost of U.S.-based rivals.
As for why the DeepSeek news is so concerning for U.S. equities, JPMorgan analyst Sandeep Deshpande questioned in a note to clients how DeepSeek’s low-cost success “is posing thoughts to investors that the AI investment cycle may be over-hyped and a more efficient future is possible.”
And more broadly, the idea of a rival undercutting the largely U.S.-based generative AI revolution throws a wrench in investors’ historic confidence in American stocks, as the S&P trades at levels compared to companies’ revenues and profits comparable to the dot-com #bubble, meaning investors are ponying up more to get a slice of stateside equities.
Referring to the “magnificent seven” set of trillion-dollar U.S. companies including Nvidia and Tesla accounting for much of the 2020s bull market, Yardeni Research founder Ed Yardeni noted a “competitive threat to their magnificence has emerged from China.”
CRUCIAL QUOTE
DeepSeek is “bad news” for American tech behemoths with “plans to dominate the AI market with their expensive AI services,” cautioned Yardeni.
https://www.forbes.com/sites/dereksaul/2025/01/27/deepseek-panic-heres-why-tech-stocks-are-getting-crushed-as-nasdaq-paces-to-worst-day-of-2025/
