Tech Stocks Plunge Amidst Competitive Threat from Chinese AI

NEW YORK — Wall Street’s top-performing tech stocks faced significant declines on Monday as a new competitor from China raised concerns about the future of artificial intelligence in the market.

The S&P 500 fell by 1.5%, largely impacted by a staggering 16.9% drop in the value of Nvidia. Other major tech firms also experienced substantial losses, leading the Nasdaq composite to a 3.1% decline, which marks its worst performance in over a month.

The decline primarily affected AI-related stocks, while other sectors of the market performed significantly better.

Interestingly, the Dow Jones Industrial Average managed to gain 289 points, or 0.7%, with many U.S. stocks actually increasing in value. However, investors with S&P 500 index funds, commonly found in 401(k) accounts, still felt the negative impact due to the dominant influence of major tech companies on market indexes.

The catalyst for this market shock was news from China, where a firm named DeepSeek announced a competitive large language model capable of rivaling U.S. leaders at a potentially lower cost. By Monday morning, DeepSeek had already topped the charts for free applications on Apple’s App Store, a notable achievement given the U.S. government's limitations on Chinese firms' access to advanced AI chips.

Analysts are expressing skepticism about the actual economic impact of DeepSeek’s announcement. Concerns linger regarding whether DeepSeek has found a way to navigate around chip restrictions and the specific technologies they are utilizing, particularly since the information is emerging from China. Dan Ives, an analyst with Wedbush Securities, noted, “It remains to be seen if DeepSeek found a way to work around these chip restrictions, which has many skeptics.”

Despite skepticism, DeepSeek’s entry into the market significantly affected AI stocks globally. In Amsterdam, Dutch chip manufacturer ASML saw a 7% decline, while Japan’s Softbank Group Corp. dropped by 8.3%, approaching its pre-announcement valuations following a prominent investment partnership in AI infrastructure touted by the White House.

On Wall Street, Constellation Energy experienced a much steeper decline, plummeting 20.8%. The company had previously announced plans to revive operations at the closed Three Mile Island nuclear plant to provide power to Microsoft’s data centers.

This reaction marks a stark contrast to the recent performances of AI stock winners, who had benefited from immense investor optimism regarding the reshaping of the global economy through AI technology. Criticism had also surfaced regarding whether these stocks had become overvalued.

A select group of seven tech companies, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, dominated the market, contributing to over half of the S&P 500's total gains last year, according to S&P Dow Jones Indices. Their significant market capitalization allows them to sway the performance of major indexes, further amplifying the impacts of any losses.

Overall, the S&P 500 decreased by 88.96 points to settle at 6,012.28. The Nasdaq composite lost 612.47 points, finishing at 19,341.83, while the Dow Jones Industrial Average rose by 289.33 points to 44,713.58.

In light of these market fluctuations, Brian Jacobsen, chief economist at Annex Wealth Management, cautioned against overreacting to the day’s sharp movements. He stated, “It is possible that the news out of China could be overstated, and then we could see a reversal of the recent market moves. It is also possible that the news is true, but then that would present new investment opportunities.”

Stocks, Market, Nvidia