Nasdaq, S&P tumble as China's DeepSeek AI model rattles Big Tech

Wall Street's fear gauge rises as AI competition impacts tech stocks, AT&T shines, and Fed rate decision looms.

The S&P 500 and the Nasdaq dropped on Monday (January 27, 2025), 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.

Explained | What is DeepSeek, and why is it disrupting the AI sector?

"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%.