Tech Stocks Crash as Chinese AI Rival Strikes, Nvidia Plunges 17%.
Wall Street's technology giants took a sharp hit on Monday, as news of a new Chinese competitor threatened to disrupt the artificial intelligence (AI) boom that has driven their recent success.
The S&P 500 dropped 1.5%, largely due to a 16.9% plunge in Nvidia’s stock. Other major tech companies also saw significant losses, dragging the Nasdaq composite down by 3.1%, marking its worst drop in over a month.
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The sharp decline was concentrated in AI-related stocks, while the broader market fared better. The Dow Jones Industrial Average rose by 289 points, or 0.7%, with most U.S. stocks showing gains. However, investors with S&P 500 index funds, common in many 401(k) accounts, felt the impact due to the heavy weighting of tech stocks in the index.
The market shock stemmed from China, where a company named DeepSeek unveiled a large language model that could rival U.S. giants at a potentially much lower cost. By Monday morning, DeepSeek had already topped the charts for free apps on Apple’s App Store. Analysts noted the feat was particularly impressive given the U.S. government’s restrictions on Chinese access to advanced AI chips. Despite this, there’s scepticism over how much DeepSeek's breakthrough will affect the AI sector, which is heavily reliant on chip makers and the sprawling data centres consuming vast amounts of computing power.
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Dan Ives, an analyst with Wedbush Securities, said, “It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used as there will be many skeptics around this issue given the information is coming from China.”
Nevertheless, DeepSeek’s emergence has sent ripples through the global AI market, causing a decline in stocks related to the sector.
In Amsterdam, ASML, a major Dutch chipmaking equipment company, saw a 7% drop. In Tokyo, Japan's Softbank Group Corp. fell 8.3%, nearing the levels it was at before the White House’s announcement about a partnership to invest up to $500 billion in AI infrastructure.
