Tech Stocks Plunge as China’s DeepSeek Challenges U.S. AI Giants

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Tech Stocks Plunge as China’s DeepSeek Challenges U.S. AI Giants/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Tech stocks suffered significant losses Monday after China’s DeepSeek announced an AI breakthrough that rivals U.S. leaders like Nvidia at a fraction of the cost. Nvidia shares fell 11.2%, pulling the Nasdaq composite down 2.7%. DeepSeek’s ascent highlights fears of disruption in the AI market, as skepticism about U.S. chip sanctions looms.

FILE – A sign for a Nvidia building is shown in Santa Clara, Calif., May 31, 2023. A rebound for Nvidia on Tuesday, June 25, 2024, is helping keep U.S. indexes close to their records Tuesday. (AP Photo/Jeff Chiu, File)

DeepSeek’s AI Disruption Rocks Tech Stocks: Quick Looks

Market Impact: The S&P 500 dropped 1.6%, with the Nasdaq falling 2.7% as tech stocks reeled.
Nvidia Slump: Nvidia shares plunged 11.2%, leading declines among AI-focused companies.
DeepSeek’s Rise: Chinese company DeepSeek launched a cost-efficient AI model, topping Apple’s App Store charts.
Global Shockwaves: Chipmakers like ASML (down 8.5%) and Softbank (down 8.3%) faced heavy losses abroad.
Investor Shift: Market uncertainty pushed investors toward safer bonds, with the 10-year Treasury yield falling to 4.54%.

Tech Stocks Plunge as China’s DeepSeek Challenges U.S. AI Giants

Deep Look

Wall Street’s tech-heavy Nasdaq composite plummeted 2.7% Monday, with Nvidia leading losses after China’s DeepSeek announced an artificial intelligence model that could rival U.S. tech giants at a fraction of the cost. The S&P 500 fell 1.6%, while the Dow Jones Industrial Average saw a milder decline of 0.3%, reflecting less exposure to the shaken AI sector.

DeepSeek, a relatively unknown Chinese tech company, revealed its large language model had already climbed to the top of Apple’s App Store, signaling a major shift in the AI landscape. Analysts were quick to note the geopolitical implications, as DeepSeek’s development emerged despite U.S. restrictions on China’s access to cutting-edge AI chips.

Nvidia and Other AI Leaders Hit Hard

Nvidia, a dominant force in AI chips, saw its stock tumble 11.2%, erasing some of the meteoric gains it had enjoyed in recent years. Nvidia’s stock skyrocketed from less than $20 to over $140 within two years, fueled by excitement over AI’s transformative potential. Monday’s drop, however, highlighted concerns that DeepSeek’s innovation could undermine the competitive edge of U.S.-based AI firms.

Other companies tied to AI also felt the sting. Constellation Energy, which had committed to supplying power to Microsoft’s data centers, fell 17.5%. Meanwhile, Meta Platforms, fresh off announcing plans to invest $65 billion in Manhattan-based AI infrastructure, also faced pressure as the market’s appetite for Big Tech cooled.

Global Ripples from DeepSeek’s Announcement

DeepSeek’s disruption was felt far beyond Wall Street. In Amsterdam, Dutch chip supplier ASML dropped 8.5%, while Tokyo’s Softbank Group Corp. lost 8.3%. Softbank’s reversal came as a shock after its recent involvement in a White House-endorsed $500 billion AI infrastructure initiative.

Markets across Europe and Asia also responded cautiously. France’s CAC 40 dipped 0.3%, Germany’s DAX lost 0.7%, and Shanghai’s stock market edged down 0.1%, impacted by weak Chinese export data and manufacturing trends.

Geopolitical Questions and Skepticism

While DeepSeek’s announcement created immediate market ripples, questions remain about the validity of its claims.

Dan Ives, an analyst at Wedbush Securities, noted, “It remains to be seen if DeepSeek found a way to work around these chip restriction rules and what chips they ultimately used.” The skepticism reflects broader concerns about China’s ability to circumvent U.S. sanctions on AI chip technologies.

Investor Flight to Safety

The uncertainty surrounding DeepSeek’s rise pushed investors toward safer options. Bond markets benefited, with the yield on the 10-year Treasury falling to 4.54% from 4.62% on Friday. The rush to bonds reflected growing unease among investors grappling with the potential reshuffling of the AI market.

A Broader Shift in AI’s Trajectory

The turmoil marks a turning point for the AI industry, which has been a driving force behind recent market gains. Investors and companies had poured billions into AI development, betting on its ability to transform industries from healthcare to entertainment.

DeepSeek’s challenge comes at a time when U.S. policymakers are also debating how to regulate AI and address its economic implications. The Federal Reserve, which meets later this week, is expected to hold interest rates steady, but the unfolding developments in the tech sector could factor into future monetary policy discussions.

What’s Next for AI and Tech Stocks?

As the dust settles, analysts will closely monitor how U.S. companies and policymakers respond to DeepSeek’s challenge. If the Chinese company sustains its momentum, it could alter the global AI supply chain and deepen tensions between the U.S. and China over technology dominance.

For now, the focus remains on whether DeepSeek’s claims will hold up under scrutiny and how U.S. tech giants like Nvidia, Meta, and Microsoft will adapt to a rapidly changing competitive landscape.