The Nasdaq Tumbles Amid AI Concerns, Led by Nvidia's Sell-Off
The Nasdaq Composite Index (^IXIC) plunged 3.02% on Monday, dragging the stock market down as a Chinese startup raised doubts about US leadership and profitability in artificial intelligence (AI). The S&P 500 (^GSPC) dropped 1.74%, while the Dow Jones Industrial Average (^DJI) remained nearly flat after a positive week.
DeepSeek, a Chinese startup, rattled markets with claims that its AI assistant can outperform leading models using cheaper chips and less data. This has sparked concerns about the demand-driven growth that has been driving gains for AI-related stocks.
Nvidia (NVDA), a bellwether of AI, saw its shares plummet over 17%, leading a sell-off in chip-related companies. ASML (ASML) lost over 6%, while Broadcom (AVGO) and Micron Technology (MU) also faced losses.
Amid the tech sell-off, Microsoft (MSFT) shares fell more than 2%, reflecting concerns about the heavy investments in AI made by megacaps. Google parent Alphabet (GOOG, GOOGL) and Amazon (AMZN) also retreated.
As stocks plunged, investors flocked to perceived safe assets. The 10-year Treasury yield (^TNX) declined by 12 basis points to 4.50%, the lowest level in over a month, while haven currencies like the Japanese yen and Swiss franc surged.
Trade war concerns also resurfaced during a confrontation between President Donald Trump and Colombia over deported migrants. Trump threatened to impose tariffs on Colombian goods but later paused the duties after a deal was reached.
This dispute highlights concerns that Trump may use tariffs to achieve policy goals. The Federal Reserve will hold its first policy meeting of 2025 this week, with officials monitoring Trump's actions closely as they could pose challenges to the central bank.
Despite the tech sell-off, Apple (AAPL) outperformed, gaining over 2%. The company has not made significant AI investments, unlike its peers. Meta (META), a major investor in AI data centers, also recovered losses and moved into positive territory.
In the housing market, new home sales rose in December despite high mortgage rates. Sales increased 3.6% to a seasonally adjusted rate of 698,000 units, surpassing analyst expectations. However, high home prices and affordability issues continue to challenge buyers.
AI-related power stocks also suffered from the sell-off. Constellation Energy (CEG), Vistra Corp (VST), and Oklo (OKLO) experienced significant losses as concerns about AI dominance and spending weighed on the energy sector.
Wall Street analysts have expressed skepticism about the long-term impact of DeepSeek's AI model, arguing that its advancements do not negate the need for US AI infrastructure or the demand for companies like Nvidia.
However, analysts also note that Trump's recent threats to implement tariffs suggest that higher tariffs may be in the pipeline, which could have implications for inflation and interest rates. This underscores the importance of tariffs as a barometer of Trump's mindset and policy intentions.