Nasdaq Tumbles Monday as Chinese AI Advance Sparks Market Selloff

Key Points:

* Nasdaq Composite plunges over 3%, weighed down by concerns about US dominance in artificial intelligence (AI).
* New AI model from Chinese startup DeepSeek raises questions about cost-efficiency and performance.
* Nvidia (NVDA), an AI bellwether, suffers a steep 17% decline.
* Dow Jones Industrial Average bucks the trend, gaining 0.6% as investors flock to defensive sectors amid tech rout.
* Market volatility expected to continue as investors assess implications of DeepSeek's emergence and the broader AI landscape.

Background:

On Monday, the Nasdaq Composite (^IXIC) witnessed a significant decline of more than 3%, while the S&P 500 (^GSPC) shed nearly 1.5%. In contrast, the blue-chip Dow Jones Industrial Average (^DJI) managed to gain over 0.6%, primarily driven by defensive stocks such as healthcare and consumer staples.

The market turmoil was sparked by concerns surrounding the recent release of a new AI model by DeepSeek, a Chinese startup. DeepSeek's model has been drawing attention for its potential cost-effectiveness, reportedly requiring fewer chips and training data than its American counterparts. This has raised questions about the viability of continued heavy investment in AI by US tech giants.

Investors were particularly rattled by the implications for Nvidia, one of the leading chipmakers in the AI market. Nvidia's stock price plunged by nearly 17% on Monday, leading a sell-off across the broader tech sector. Other chip-related companies, such as Broadcom (AVGO) and Micron Technology (MU), also experienced significant losses.

The tech rout had wider repercussions, with companies that have been heavily investing in AI, such as Meta (META) and Microsoft (MSFT), seeing their share prices decline. The sell-off also extended to software companies, including Salesforce (CRM) and Workday (WDAY).

In addition to the AI concerns, the market was also influenced by ongoing trade war worries. Over the weekend, President Donald Trump threatened to impose tariffs on goods from Colombia, only to pause them after a deal was reached to address the issue of deported migrants. The threat of additional tariffs has raised concerns about the broader impact on global trade and economic growth.

The market volatility is expected to continue as investors monitor the evolving AI landscape and assess the implications of DeepSeek's emergence. The Federal Reserve's first policy meeting of 2025, scheduled to begin on Tuesday, will also be closely watched, with the central bank expected to hold rates steady despite pressure from Trump to lower them.