Nasdaq clobbered, Nvidia sinks 17% while Dow stages comeback as AI fears shake markets

The Nasdaq Composite (^IXIC) sank more than 3% on Monday as Chinese startup DeepSeek put in question US dominance over artificial intelligence and valuations for chip bellwether Nvidia (NVDA).

The S&P 500 (^GSPC) dropped roughly 1.5% while the blue-chip Dow Jones Industrial Average (^DJI) bucked the trend to rise 0.6%, lifted by shares of Apple (AAPL) and software giant Salesforce (CRM).

Claims by China’s DeepSeek that its AI model is more efficient and less expensive spooked the markets, sending AI bellwether Nvidia down almost 17%. Nvidia wiped out a record $589 billion in market value during Monday’s session.

Investors will be paying attention to any additional industry clues after software giant Microsoft (MSFT) and Meta (META), two big AI spenders, are scheduled to report earnings later this week.

The Federal Reserve’s first meeting of 2025, which starts on Tuesday, will also be in focus over the next few sessions, though the expectation is for policymakers to hold rates steady.

“We think the Fed is done cutting rates. With inflation stuck above target, stabilization of the labor data gives the Fed the luxury to remain on hold until there is greater clarity on policy,” wrote BofA analysts in a recent note.

New developments from Chinese artificial intelligence company DeepSeek sparked a route in many companies tied to the AI trade. DeepSeek rattled markets as its team claimed its AI model uses cheaper chips and less data than the popular American AI models.

Notable stocks falling today include chip names like Nvidia (NVDA) and Broadcom (AVGO), which are down more than 15% each. Companies like Vistra (VST), which has been seen as a beneficiary of the increased power needed to operate AI servers, also saw a massive sell-off on Monday.

But one part of the AI trade is holding up OK. Several AI software stocks, including Salesforce (CRM), Hubspot (HUBS), and Workday (WDAY), are actually higher on Monday. Those companies fall into a basket of stocks strategists have highlighted as likely to be the next generation of the AI trade as investors move from focusing on the infrastructure buildout to corporates that will see increased sales and profits from using AI within their business.

These companies, unlike their chip counterparts, wouldn’t be hurt by less investment being needed to build out AI like DeepSeek has teased out. In fact, they might even benefit from it.

“If you do bring down the cost of using AI, then some of the other 493 companies [in the S&P 500], or more than that, may benefit,” Truist co-chief investment officer Keith Lerner told Yahoo Finance on Monday.

Treasurys surged on Monday as investors rushed to the safety of government bonds following a sell-off in the equity market led by tech stocks.

The 10-year (^TNX) Treasury yield fell as low as 4.50% Monday afternoon, while the 2-year rate fell as low as 4.10%, dropping to the lowest level in over a month.

Global markets were rattled after Chinese artificial intelligence company DeepSeek grabbed traders’ attention — and sent a shockwave to chipmakers, infrastructure suppliers, and power stocks — due to claims that its technology uses cheaper chips and less data than American AI assistants.

The length of the bond haven trade will likely depend on how far equities drop, with key events ahead this week, including the Federal Reserve’s monetary policy decision on Wednesday and President Donald Trump’s economic policies drawing attention.

This is not a broad sell-off.

The structure of the current market — where a handful of megacap tech companies and plays related to the massive AI buildout are currently sweeping the US economy and global corporate power brokers — has led to almost 40% of the S&P 500’s value being tied up in 10 companies.

That narrow breadth is not inherently bad. Nothing in markets is. That is just the market today.

And though the trade has frustrated many investors over the last two years, there’s been a widely held view across the investment profession that the so-called S&P 493 would be due to take its turn leading the market.

And while one day is just one day, this not a market that looks to be under the duress that a 3% sell-off in the Nasdaq might otherwise suggest.

After all, the Dow is green. Apple (AAPL) is up more than 3%. The entire drug manufacturer complex is higher. Consumer staples are outperforming. Even software names are working.

So, no, a 3% drop in the Nasdaq — and a nearly 20% decline in what was, before today, the world’s largest company — is not to be ignored. These are very serious cracks in what we believed to be the market’s foundation heading into the weekend.

But this is not a broken market. At least based not on Monday’s trading.

Oil slid more than 2% on Monday as the tariff threats over the weekend increased fears of shrinking demand and China’s manufacturing data came in weaker than expected.

West Texas Intermediate (CL=F) futures traded near $72 per barrel, while Brent (BZ=F), the international benchmark, also declined 2% to hover near $76 per barrel.

China’s purchasing managers’ index contracted to 49.1, versus estimates of just above 50, sparking concerns that Asian demand will rebound at a slower-than-expected pace.

Also on Sunday the White House reversed a 25% tariff announcement against Colombia over a dispute related to the delivery of illegal immigrants. The reversal was enough to spook the markets about a possible trade war and the impact that could have on economic growth.

“Crude Futures are continuing to seek equilibrium as the economic sanctions of possibly less global supply is countering the possibility of more tariffs trimming Asian demand,” Dennis Kissler, senior vice president at BOK Financial, said in a note to clients on Monday. “That along with a sharply lower US stock market is keeping the sellers active.”

Bitcoin (BTC=F) and other cryptocurrencies are taking a hit as tech stocks move lower amid the news of a new Chinese artificial intelligence model triggering a global sell-off in riskier assets.

Bitcoin dropped below $100,000 on Monday after achieving an all-time high of over $109,000 the previous week. Ethereum (ETH-USD) traded below $3,100, its lowest level since November.

This year, bitcoin has shown a stronger correlation with tech stocks, which took a beating on Monday, with AI darling Nvidia (NVDA) leading the way.

Concerns over Chinese startup DeepSeek’s AI model are rattling global companies riding the AI wave — including chipmakers, infrastructure suppliers, and power stocks — as investors grow more uncertain about the future of AI spending.

Yahoo Finance’s Hamza Shaban reports:

The AI frenzy that has reshaped the tech world and commanded the attention of Wall Street took an anxious turn Monday after a Chinese upstart burst onto the scene, dazzling early users and sparking fears that US AI leadership is now under threat.

It wasn’t just the Chinese model’s performance that rattled American investors and executives. The team behind DeepSeek, the AI model maker, claims that the technology uses cheaper chips and less data than the popular American AI assistants that have captivated the tech elite and the broader public.

A foreign competitor offering a rival product at a fraction of the cost has thrown into question the exorbitant spending of American tech giants. And it has poked holes in the idea of US tech supremacy and innovation, at the cost of many of Wall Street’s most favored companies.

Read more here.

Investors flocked to defensive stocks on Monday, helping flip the Dow Jones Industrial Average (^DJI) into green territory.

Dow components Johnson & Johnson (JNJ), United Healthcare (UNH), and Procter & Gamble (PG) all rose. Tech giant Apple (AAPL) and cloud giant Salesforce (CRM) also buoyed the blue-chip index.

A tech sell-off gripped the markets following Chinese AI startup DeepSeek’s recent language model release. AI bellwether Nvidia (NVDA) tanked as much as 17%, weighing on the Nasdaq Composite (^IXIC) and S&P 500 (^GSPC).

Losses accelerated on Monday as AI bellwether Nvidia (NVDA) dropped more than 17%, leading a sell-off across the broader market after a new AI model from China’s DeepSeek raised questions about AI investment and the rise of more cost-efficient artificial intelligence agents.

Chinese startup DeepSeek released a new AI model on Jan. 20 viewed as a threat to OpenAI. American venture capitalist Marc Andreessen called the model “one of the most amazing and impressive breakthroughs I’ve ever seen.”

The news came just a month after DeepSeek said one of its latest AI models cost just $5.6 million to train. Meanwhile, OpenAI’s GPT model cost more than $100 million to train.

Read more here.

DeepSeek said on Monday morning it is temporarily limiting registrations due to a large-scale malicious attack on its services. The company’s AI assistant was at the top of Apple’s download chart on Monday.

The market for new homes picked up in December even as mortgage rates remained high, data released on Monday showed.

Sales of new residential construction rose 3.6% in December to a seasonally adjusted rate of 698,000 units, up from November’s revised rate of 674,000, according to the Census Bureau data. That topped Bloomberg consensus expectations for a pace of 672,000.

Some house hunters are having trouble committing because borrowing costs remain expensive. Mortgage rates hovered around 6.9% in December and have stayed around the same range in 2025 so far, at just below 7%.

Those elevated rates have pushed some builders to sweeten the deal for house hunters struggling to afford a purchase.

“To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buydowns, and we have continued to start and sell more of our smaller floor plans,” DR Horton (DHI) CEO Paul J. Romanowski said on an earnings call last week.

Still, would-be buyers are dealing with high home prices. The median sales price of new homes rose to $427,000 from $402,600 in December.

AI-exposed power stocks were swept away with the tech sell-off after Chinese startup DeepSeek raised questions over AI dominance and spending in the US.

Constellation Energy (CEG), the largest nuclear plant operator in the US, tumbled a record 17%, while peer Vistra Corp (VST) dropped 21%. Nuclear power startup Oklo (OKLO) also tanked 21%.

All three stocks hit all-time highs last week as shares in the energy companies needed to power data centers have soared thanks to AI optimism.

The Nasdaq tumbled on Monday amid growing skepticism over US artificial intelligence dominance after Chinese AI startup DeepSeek gained major attention over the weekend.

The tech-heavy Nasdaq Composite (^IXIC) sank more than 3.5%, while the S&P 500 (^GSPC) slid over 2%. The Dow Jones Industrial Average (^DJI) fell 0.5%, or more than 200 points.

DeepSeek’s recently launched product, which is reportedly more efficient and requires fewer chips than AI models from Open AI or Meta (META), has raised questions over the US’s position in AI. It has also prompted a rethink on valuations, including that of chip leader Nvidia (NVDA), whose stock sank as much as 13%.

Other chip-related stocks fell. Semiconductor equipment maker ASML (ASML) lost more than 8%, while Arm (ARM), Broadcom (AVGO), and Micron Technology (MU) also got hammered.

Wall Street analysts pushed back against the market reaction.

“I don’t think DeepSeek is doomsday for AI infrastructure,” Stacy Rasgon, managing director and senior analyst at Bernstein, told Yahoo Finance.

“The models they built are fantastic — they really are — and they’ve pulled a number of levers on efficiency. But what they’re doing is not miraculous, either, or unknown to other top AI researchers or AI labs that are out there,” he added.

Before Sunday night’s rout in futures turned investor attention squarely to fears about what China’s DeepSeek AI might mean for the future of the US-centric AI investment boom, this past weekend saw President Trump remind investors that tariffs are still at the top of his agenda.

Though a back-and-forth between the White House and Colombia saw the South American nation ultimately accept a deal to take in migrants being deported from the US to avoid immediate 25% tariffs on exports bound for the US, the speed with which the president acted is the key takeaway for investors.

“Tariffs are coming,” wrote Neil Shearing, group chief economist at Capital Economics, in a note on Monday.

“That seems to be one of the key takeaways from an extraordinary week which began with relief that the new president’s inaugural address skipped talk of tariffs, but was followed by a stream of threats from Donald Trump to start raising duties on leading trade partners — and ended with reports suggesting tariffs could be imposed on Mexico and Canada as soon as this weekend.

“All of this has poured some cold water on the idea, still lurking in some parts of the market, that the threat to impose tariffs was bluster. It now seems likely that higher tariffs are in the pipeline and, as we have embedded in our central forecasts, that they could be imposed relatively soon.”

Trump’s first week in office, as Shearing notes, was greeted with relief from investors as Trump declined to impose new duties on any major trade partners in an executive action on Monday.

The president later set a Feb. 1 deadline for taking firmer action.

How tariffs have become enmeshed with the fate of TikTok, for instance, ought to serve as a reminder that while the economic implications of tariffs are of interest to investors — notably the impact on inflation and interest rates that may result from higher tariffs — what they symbolize is more important.

Namely, tariffs are the best way for an investor trying to understand Trump’s mindset at any given point in time to get a firm answer.

One of the biggest discussions among investors over the last two years has been about how concentrated the S&P 500 has become.

Meaning the percent of the value of the overall index accounted for by the biggest 10 companies is at a record high, as we see in the chart below from Truist Wealth’s Keith Lerner published earlier this month.

There is nothing inherently bad about market concentration, of course.

The most important long-term driver of stock prices is earnings growth, and the biggest companies in the market — the Magnificent Seven, most notably — have been the largest contributors to earnings growth since the AI boom began in early 2023 and are expected to remain that way through this year.

In fact, Wall Street expects Mag 7 earnings growth to reaccelerate in the second half of this year.

And what markets trade on is not what’s happening today, but what investors think will happen tomorrow. Not just the rate of change, but the expected change in the rate of change.

So when these expectations are upset, or even questioned, as seems the fairest characterization of fears about DeepSeek’s capabilities, we get reactions like what we’re seeing in stocks this morning.

Many companies and industries will see unexpected threats to their competitive standing come and go over time.

Investors will constantly be reevaluating their embedded assumptions about earnings growth and, in turn, reevaluating the terminal value of a given company’s future cash flows when discounted back to the present.

It just so happens that this process is playing out Monday morning for the market’s biggest companies, which have never played a larger role in shaping the overall stock market’s direction. And so a few pointed questions end up taking a trillion dollars off the stock market’s value.

Nvidia (NVDA) is getting pummeled pre-market by 10% on fears around China-based OpenAI rival DeepSeek. The concern? DeepSeek reportedly developed its powerful new large language model using far fewer advanced chips than US rivals are using.

I’ll have more to say on this on the Opening Bid podcast episode dropping on Yahoo Finance this morning. But the reaction sure seems overdone.

The notion that Meta (META) is suddenly going to reverse its billions of dollars being spent on AI infrastructure — powered by Nvidia chips — seems far-fetched. Further, can one even trust the claims by DeepSeek? And lastly, DeepSeek’s alleged advances are unlikely to alter the demand backdrop for Nvidia this year — if at all.

Good to really question this type of news thoroughly.