Nasdaq Plunges Amid AI Concerns, Nvidia's Stock Tumbles

The Nasdaq Composite Index (^IXIC) experienced a significant decline on Monday, falling by 2.2%, with the S&P 500 (^GSPC) also experiencing a drop of 1.4%. Leading the selloff was Chinese startup DeepSeek, whose AI assistant's impressive performance has cast doubt on US leadership and profitability in the field.

AI Bellwether Nvidia Suffers

Nvidia (NVDA), a key player in the AI sector, saw its shares plummet by over 13% as investor confidence was shaken by DeepSeek's claims. The company's chips are widely used in AI applications, and concerns about reduced demand led to a sell-off in chip-related stocks.

Broader Market Concerns

The Nasdaq's decline also impacted other tech giants such as Microsoft (MSFT), Alphabet (GOOG, GOOGL), Meta (META), and Amazon (AMZN). Investors started to flock to assets perceived as safe, leading to a drop in the 10-year Treasury yield (^TNX).

Tariff Worries Resurface

In addition to the AI concerns, trade war worries were reignited by President Donald Trump's threat to impose tariffs on goods from Colombia. Trump's recent actions underscore his willingness to use tariffs as a tool to achieve policy goals.

Federal Reserve Meeting on Horizon

This week, the Federal Reserve will hold its first policy meeting of the year, with eyes on quick-fire moves by Trump that could challenge the central bank. The president has called for interest rate cuts, setting the stage for potential clashes with policymakers.

New Home Sales Rise

Despite concerns about elevated mortgage rates, new home sales rose in December to a seasonally adjusted rate of 698,000 units, exceeding analyst expectations. However, median sales prices continued to rise, indicating ongoing affordability challenges.

AI-Exposed Power Stocks Hit Hard

The DeepSeek-inspired selloff also impacted power stocks with AI exposure. Constellation Energy (CEG), Vistra Corp (VST), and Oklo (OKLO) suffered significant declines due to fears about reduced AI-related energy demand.

Wall Street Ponders DeepSeek's Impact

While DeepSeek's advances have raised questions about US AI dominance, Wall Street analysts have cautioned against overreaction. Stacy Rasgon of Bernstein believes DeepSeek's model is innovative, but its advantages are not insurmountable for top AI researchers and labs.