NEW YORK: The S&P 500 and the Nasdaq dropped on Monday, as the surging popularity of a low-cost Chinese artificial intelligence model knocked shares of chipmaker Nvidia and other companies benefiting from investments into the technology.
Chinese startup DeepSeek has rolled out a free assistant it says uses cheaper chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centers.
DeepSeek’s AI Assistant on Monday overtook rival ChatGPT to become the top-rated free application available on Apple’s App Store in the United States.
“It’s clearly not good for ChatGPT to have an aggressive competitor, but we don’t buy the thesis that this is going to tank the demand for high-end GPUs,” said Infrastructure Capital Advisors CEO Jay Hatfield, referring to the advanced semiconductors needed to run AI applications.
AI chip leader Nvidia’s shares slumped 15.1%, while a gauge of semiconductor stocks slid 8.2%, heading for its worst single-day drop since March 2020.
Microsoft and Google-parent Alphabet fell 3.8% and 2.8%, respectively, while AI server makers Dell Technologies and Super Micro Computer skid 8.6% and 11.1%.
Power companies, which are expected to see a surge in demand from energy-intensive data centers needed to develop AI technology, also came under pressure. Vistra and GE Vernova tumbled 27.9% and 19.7%, respectively.
Data center operators also tanked, with Digital Realty sliding 12.9%.
At 11:21 a.m. ET, the Dow Jones Industrial Average fell 43.01 points, or 0.10%, to 44,381.24, the S&P 500 lost 107.59 points, or 1.76%, to 5,993.65 and the Nasdaq Composite declined 589.56 points, or 2.95%, to 19,364.74.
The Cboe Volatility Index, known as Wall Street’s “fear gauge”, hit its highest since Dec. 20, last up 4.2 points at 19.05.
Bucking the wider trend, AT&T rose 5.3% to an over three-year high after its fourth-quarter wireless subscriber growth surpassed expectations.
Defensive sectors such as health care and consumer staples also escaped the gloom, up more than 1.5% each.
Big Tech will remain in focus, as Microsoft, Meta, Apple and Tesla - four out of the “Magnificent 7” companies that powered the bulk of last year’s gains - are set to report quarterly numbers later this week.
Global markets were also on edge as the US and Colombia pulled back from the brink of a trade war on Sunday after the White House said the South American nation had agreed to accept military aircraft carrying deported migrants.
On the economic radar, the US Federal Reserve is widely expected to hold its lending rate steady in its first interest-rate decision of the year due on Wednesday, while the December reading of the personal consumption expenditures (PCE) is scheduled for Friday.
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