The same technology companies that have benefited from the AI frenzy over the past year were taking a hit even before the market officially opened on Monday.
NEW YORK — Wall Street superstars are falling on Monday as Chinese competitors threaten to upend the artificial intelligence craze that has produced a bumper crop of spending.
The S&P 500 fell 1.7% in intraday trading, hitting its lowest point in more than a month. Big tech stocks had the biggest losses, including Nvidia, which fell 14.4%, pushing the Nasdaq Composite down 2.8%.
But stocks outside of AI-related industries have held up well, with the Dow Jones Industrial Average down just 54 points, or 0.1%, as of 11:05 a.m. ET. The Dow is less focused on tech stocks than the S&P 500 or Nasdaq, but it was briefly on a modest upward trajectory in the morning.
The shock to financial markets came from China. A company called DeepSeek has announced that it has developed a large-scale language model that can compete with giant American companies at a fraction of the cost. DeepSeek's app was already at the top of Apple's App Store chart by Monday morning, and analysts say the move is likely given the U.S. government's restrictions on China's access to top AI chips. He said such a feat would be especially memorable.
But how much will DeepSeek's announcement ultimately shake up the AI supply chain, from chipmakers making semiconductors to power companies looking to electrify their vast computing power-hungry data centers? There remains some skepticism regarding this.
“It remains to be seen whether Deep Seek found a way to circumvent these chip restriction rules and what kind of chips they ended up using. Given that the information comes from China, this issue There's going to be a lot of skepticism,” said analyst Dan Ives. Wedbush Securities.
Nevertheless, the DeepSeek turmoil rocked stock markets around the world.
In the Amsterdam market, Dutch chip supplier ASML fell 6.6%. In Tokyo, Japan's SoftBank Group fell 8.3%, close to its level before jumping on the announcement. The White House trumpeted announced that it will join a partnership to invest up to $500 billion in AI infrastructure.
And on Wall Street, Constellation Energy shares fell 19%. of The company announced that it would reopen shutter closed Three Mile Island Nuclear Power Plant Provides power to Microsoft data centers.
All the fear has led investors to bonds, a safer investment than any stock. The rush pushed the yield on the 10-year U.S. Treasury note down to 4.54% from 4.62% late Friday.
It's a sharp turnaround for the AI winner, which has soared in recent years on hopes that any incoming investment will reshape the global economy and make huge profits in the process.
Before Monday's drop, for example, Nvidia's stock had soared from less than $20 to more than $140 in less than two years.
Other Big Tech companies joined in on the frenzy, and their stock prices also benefited. Just Friday, Meta Platforms CEO Mark Zuckerberg spoke out about a data center Meta is building in Louisiana that will be large enough to cover most of Manhattan this year. It just said it plans to invest up to $65 billion.
A small group of such companies became so dominant that they became known as the “Magnificent Seven.” Alphabet, Amazon, Apple, Metaplatforms, Microsoft, Nvidia and Tesla alone accounted for more than half of the S&P 500's total return last year, according to S&P Dow Jones Indices.
Its sheer size gives it significant influence over the S&P 500 and other indexes that are heavily weighted toward larger companies. This represents the risk of betting too much on a small number of winning stocks, which market experts call “concentration risk.”
“It can feel good when a few names and ideas are floating around, but it's even more dangerous when disruption occurs,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Still, he suggested not overreacting to Monday's sharp swings. “The news coming out of China may be exaggerated, in which case we could see a reversal of recent market movements,” Jacobsen said. “It is also possible that the news is true, in which case new investment opportunities will emerge.”
There may be even more turmoil in the future. Apple, Metaplatform, Microsoft and Tesla are scheduled to report next week how much profit they will make at the end of 2024.
Companies are under pressure to continue generating strong profits despite Monday's drop, especially after the recent spike in U.S. Treasury yields. When bond interest payments increase, this puts downward pressure on stock prices.
So far, major U.S. companies have reported better financial results than analysts expected. AT&T was the biggest stock gainer on Monday, rising 5.9%.
In overseas stock markets, indexes across Europe and Asia did not move as strongly as major U.S. tech stocks. France's CAC40 fell 0.1% and Germany's DAX fell 0.4%.
In Asia, stock prices fell 0.1% on the Shanghai market. Manufacturer survey The data showed that China's export orders fell to the lowest level in five months.
The Fed will hold its latest policy meeting later this week. Traders do not expect recent weak economic data to prompt the Fed to cut its key interest rate. According to , they are almost certain that the central bank will remain strong. Data from CME Group.
AP Business writers Matt Ott and Elaine Kurtenbach contributed.
