Nasdaq Sinks, S&P 500 Falls as AI Fears Rock Tech Stocks

Doubts about the dominance of American artificial intelligence sent the Nasdaq falling on Monday after Chinese AI startup DeepSeek gained significant attention over the weekend.

The tech-heavy Nasdaq Composite (^IXIC) sank more than 3.5%, while the S&P 500 (^GSPC) slipped more than 2%. The Dow Jones Industrial Average (^DJI) fell 0.5%, or more than 200 points.

DipSeq’s recently launched product, which is said to be more efficient and require fewer chips than Open AI or Meta (META) models, has raised questions about the US’s position in AI. It also led to a rethink on valuations, including chip leader NVDA’s stock down as much as 13 percent.

Other chip-related stocks fell. Semiconductor equipment maker ASML ( ASML ) lost more than 8%, while ARM ( ARM ), Broadcom ( AVGO ) and Micron Technology ( MU ) were also hammered.

Wall Street analysts pushed back against the market’s reaction.

“I don’t think DeepSeek is doomsday for AI infrastructure,” Bernstein managing director and senior analyst Stacey Rasgon told Yahoo Finance.

“The models they’ve built are fantastic — they really are — and they’ve pulled off a lot of efficiency. But what they’re doing isn’t miraculous, or any of the other top AI researchers or AI labs out there,” he added.

Before Sunday night’s future focused investors on what China’s DeepSeek AI could mean for the future growth of US-centric AI investment, President Trump reminded investors last weekend that tariffs are still at the top of the agenda.

Although the back-and-forth between the White House and Colombia saw the South American country accept a deal to accept immigrants deported from the US to avoid a swift 25% tariff on goods exported to the US, the speed with which the president went. Action is the key takeaway for investors.

“Tariffs are coming,” Neil Shearing, group chief economist at Capital Economics, wrote in a note on Monday.

“This appears to be one of the key takeaways from an unusual week that began with relief from the new president’s inaugural address, skipping talk of tariffs, but followed a flurry of threats to raise tariffs on Donald Trump’s major trading partners — and reports as soon as this weekend that tariffs could be imposed on Mexico and Canada. Completed.

“All this has poured cold water on the idea, it is still hidden in some markets, the threat of imposing tariffs has faded. Now it seems that a high tariff is in the pipeline and as we put it in us. Central forecasts can be installed relatively soon.”

Trump’s first week in office, Shearing notes, drew relief from investors after Trump’s executive action on Monday declined to impose new duties on any major trading partners.

The president later set a February 1 deadline for tougher action.

While the economic implications of tariffs are of interest to investors — especially the impact on inflation and interest rates caused by higher tariffs — it should be a reminder of how tariffs have been tied to TikTok’s fate. Marking is more important.

That is, tariffs are the best way to get the right answer for an investor trying to understand Trump’s thinking at any given time.

One of the biggest debates among investors over the past couple of years has been how bullish the S&P 500 is.

As we can see in the chart below from Truist Wealth’s Keith Lerner published earlier this month, the percentage of the overall index’s value held by the largest 10 companies is at an all-time high.

There is nothing inherently bad about market concentration, of course.

Stock price is the most important long-term driver of earnings growth, and the biggest companies in the market — the Magnificent Seven, in particular — have been the biggest contributors to earnings growth since the start of the AI ​​boom in early 2023 and are expected to continue. This way this year.

Indeed, Wall Street expects 7% earnings growth. Speed ​​up again The second half of this year.

And markets trade not on what is happening today, but on what investors think will happen tomorrow. Not just the rate of change, but the expected rate of change.

So when these expectations are tempered or questioned, in what appears to be a valid behavior of fears about DeepSeek’s capabilities, we get a reaction like we saw in stocks this morning.

Many companies and industries face and face unexpected threats to their competitive position over time.

Investors regularly reassess their assumptions about earnings growth, and in turn, reassess the value of a company’s future cash flows when discounted to the present.

For those of you who haven’t played a major role in shaping the direction of the overall stock market, this process is playing out for the biggest companies on the market on Monday morning. And so a few suggested questions end up taking a trillion dollars off the value of the stock market.

Nvidia (NVDA) premarket is getting hammered by 10% amid concerns surrounding China-based OpenAI rival DeepSeek. The threat? DeepSeek has reportedly developed its powerful new large language model using far fewer advanced chips than those used by its US rivals.

I have more to say about this in this morning’s Opening Bid podcast episode on Yahoo Finance. But the response seems to be very accomplished.

The notion that Meta is going to suddenly reverse the billions of dollars spent on AI infrastructure — fueled by Nvidia’s chips — seems far-fetched. Furthermore, can one even trust DeepSeek’s claims? And finally, the developments that DeepSeek is suing for aren’t likely to change the background of Nvidia’s demand this year — if at all.

It’s nice to actually ask for this kind of news.