The Nasdaq tanks amid concerns over Chinese AI advancements
The Nasdaq plunged over 3% on Monday as investors grew concerned about the future of US leadership in artificial intelligence (AI) following the emergence of a Chinese startup called DeepSeek. DeepSeek claims its AI model uses less expensive chips and data than leading American models, potentially challenging the dominance of companies like Nvidia (NVDA). The S&P 500 also fell nearly 1.5%, while the Dow Jones Industrial Average rose slightly as investors sought refuge in more defensive sectors.
Tech giants take a hit
Shares of Nvidia plummeted nearly 17% on Monday, leading a sell-off across the tech sector. Other chip-related stocks, such as ASML and Broadcom, also suffered significant losses. Meta and Salesforce, which have invested heavily in AI, saw their shares decline as well.
Concerns over AI spending and valuations
DeepSeek's announcement has raised questions about the future of AI spending and valuations in the US. Investors are concerned that if AI can be developed more efficiently, it could reduce the need for the massive investments that American tech giants have made in the sector. This could put pressure on the valuations of companies like Nvidia and others that have bet heavily on AI.
Investors seek safety
As tech stocks fell, investors flocked to more defensive sectors. The 10-year Treasury yield fell to its lowest level in over a month as investors sought safety in government bonds. The yen and the Swiss franc also gained ground as haven currencies.
Other market news
* New home sales increased in December despite elevated mortgage rates.
* AI-exposed power stocks, such as Constellation Energy and Vistra Corp, tumbled amid fears about the DeepSeek challenge.
* Big Tech earnings season begins this week, with Apple, Meta, and Microsoft reporting results.
* The Federal Reserve will hold its first policy meeting of the year this week, with policymakers expected to keep rates on hold.