Nasdaq sinks, S&P 500 falls as AI fears rocky technology shares

Nasdaq overturned in the midst of increasing skepticism of American dominance of artificial intelligence after Chinese AI-Startup Deepseek got a lot of attention over the weekend.

The Technology tongue Nasdaq Composite (^IXIC) sank more than 3.5 %, while the S&P 500 (^gspc) fell over 2 %. Dow Jones Industrial Average (^DJI) fell 0.5% or more than 200 points.

Deepseeks newly launched product, which is reportedly more effective and requires fewer chips than AI models from Open AI or Meta (Meta), has raised questions about the US position within AI. It has also caused a reconsideration of valuations, including the chip leader NVIDIA (NVDA), whose stock sank as much as 13%.

Other chip-related shares fell. The semiconductor equipment manufacturer ASML (ASML) lost more than 8%, while arm (arm), Broadcom (AVGO) and Micron Technology (MU) also got hammered.

Wall Street analysts pushed back to the market reaction.

“I don’t think Deepseek is doomsday for AI infrastructure,” Stacy Rasgon, CEO and senior analyst at Bernstein, told Yahoo Finance.

“The models they built are amazing – they really are – and they have pulled a number of handles on the effectiveness. But what they are doing is also not miraculous or unknown to other top AI scientists or AI -Laboratories that are Out there, ”he added.

Before Sunday night’s route in Futures, investors turned the attention directly to the fear of what China’s Deepseek AI could mean for the future of US-centered AI investment boom, so President Trump this weekend reminded investors that tariffs are still at the top of his agenda.

Although a back and forth between the White House and Colombia saw the South American nation ultimately accept an agreement to receive migrants deported from the United States to avoid immediate 25 % duty on exports to the United States, the speed at which the president is trading is The most important takeaway for investors.

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

“It seems to be one of the most important things from an extraordinary week that started with relief that the new president’s opening speech skipped the speech of customs, but was followed by a stream of threats from Donald Trump to begin to raise customs on leading trading partners – and ended up with reports indicating that customs could be imposed on Mexico and Canada this weekend.

“All of this has poured some cold water on the idea that still lurks in some parts of the market that the threat of introducing tariffs was fierce. It seems now likely that higher tariffs are in the pipeline and which we have embedded in our central forecasts that they could be imposed relatively quickly. “

Trump’s first week in office, as Shearing notes, was met with relief from investors as Trump refused to impose new trading partners new duties in an executive act on Monday.

The president later set a deadline on February 1st to take more fixed steps.

For example, how tariffs have been entangled in Tiktok’s fate should serve as a reminder that although the financial consequences of tariffs are of interest to investors – especially the impact of inflation and interest rates that can follow from higher tariffs – what they symbolize are more important.

Tariffs are the best way for an investor trying to understand Trump’s thinking at a given time to get a fixed answer.

One of the biggest discussions among investors over the past two years has been about how concentrated S&P 500 has become.

This means that the percentage of the value of the total index that the largest 10 companies stand for is record high, which we can see in the diagram below from Truist Wealth’s Keith Lerner published earlier this month.

Of course, there is nothing bad about market concentration.

The most important long -term driving force for stock prices is earnings growth, and the largest companies in the market – the magnificent seven, most remarkably – have been the biggest contributors to earnings growth since the AI ​​boom began in early 2023 and is expected to remain in that way through in year.

Actually expect Wall Street Mag 7 earnings growth to accelerate again in the second half of this year.

And what the markets are acting on is not what is happening today, but what investors think will happen tomorrow. Not just the change rate, but the expected change in change speed.

So when these expectations are disturbed or even questioned, as the most fair characterization of the fear of Deepseek’s abilities seems, we get reactions like what we see in shares this morning.

Many companies and industries will see unexpected threats to their competitiveness come and go over time.

Investors will constantly re -evaluate their embedded assumptions about earnings growth and, in turn, reassess the terminal value of a given company’s future cash flows when discounted to the present.

It’s just that this process takes place on Monday morning for the market’s largest companies, which has never played a greater role in shaping the overall stock market direction. So a few pointed questions end up taking a trillion dollars of the stock market value.

NVIDIA (NVDA) is being hit by 10 % before the market due to fears about the Chinese-based Openai Rival Deepseek. The concern? Deepseek has reportedly developed its powerful new large language model by using far fewer advanced chips than US rivals use.

I want more to say about this about the opening bid podcast episode that falls on Yahoo Finance this morning. But the reaction certainly seems excessive.

The notion that Meta (Meta) will suddenly return its billions of dollars spent on AI infrastructure – driven by NVIDIA chips – seems far out. Can you also rely on the claims from Deepseek? And finally, Deepseek’s alleged progress is unlikely to change the demand background for Nvidia this year – if at all.

Well really to question this type of news.