Nvidia and the market's favorite tech darlings are getting crushed by DeepSeek's AI push
credit should read CFOTO/Future Publishing via Getty Images
- Tech stocks plunged Monday as investors reacted to a new AI tool from China.
- The debut of DeepSeek is hitting the top US tech names, including Nvidia, Broadcom, and Microsoft.
- Investors fear the new AI tool could challenge one of the stock market's dominant bull narratives.
Technology stocks were hit hard on Monday as traders reacted to the unveiling of a new artificial intelligence model from China that investors fear could threaten the dominance of some of the largest US players.
The emergence of China's DeepSeek startup is shaking the US stock market's dominant bull narrative. In particular, the new AI model —which was trained on less advanced, cheaper Nvidia chips — has challenged Wall Street's view of massive AI spending undertaken by companies in the last two years.
It has also called into question the sky-high valuations that mega-cap tech giants command, which have largely been backed up by lofty expectations around AI.
DeepSeek was already roiling markets over the weekend, and the rout on Monday took off as it surpassed ChatGPT on Apple's US App Store.
The Nasdaq 100 dropped as much as 4%, with semiconductors and the most popular names of the AI trade seeing the deepest losses. The S&P 500 lost as much as 2%, and the Dow Jones Industrial Average fell about 200 points shortly after the opening bell.
Here are some of the top tech names selling off on Monday morning.
Oracle and SoftBank, which were part of a $500 billion deal President Trump announced last week to build more AI infrastructure, also dropped. Oracle shares were down as much as 9%, while SoftBank shares were down 8% after Tokyo's stock exchange closed on Monday.
Wall Street is worried that DeepSeek's disruptive debut could foreshadow a wider reckoning in the AI space, with investors already worried about the returns on enormous AI spending by companies. What's more, since the Magnificent Seven stocks drove more than half of the S&P 500's gains in 2024, the dominant engine of the bull market is at risk if DeepSeek prompts investors to adjust their expectations of AI and the costs associated with the technology.
"What makes Monday's tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error. Excessive valuation always becomes a problem, eventually, but fundamental news becomes a heightened problem when it is combined with excessive valuation," David Bahnsen, the chief investment officer of the Bahnsen Group, wrote in a note on Monday.
"DeepSeek is a word you've heard all weekend, and you'll hear all day today," Jeff Kilburg, the CEO of KKM Financial, said, speaking to CNBC on Monday. "This could be the pin that pops the Mag Seven bubble."
Some, though, are hopeful that DeepSeek could push tech firms in the US to become more competitive.
"These companies have deep pockets and talent," Nancy Tengler, the chief investment officer of Laffer Tengler Investments, said in a note, pointing to reports that Meta had already set up war rooms to analyze DeepSeek. "We will soon find out if all the claims are true and it is my expectation that we will also learn how quickly US firms can adapt."
Microsoft CEO Satya Nadella also theorized that the rise of cheaper AI models like DeepSeek could accelerate more widespread adoption of the technology, boosting the space.
"As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of," he wrote on X.