Nasdaq sinks, S&P 500 tumbles as AI fears rock tech stocks

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 start-up 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 less 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.