S&P 500 slides, Nasdaq drops 3% in sharp AI stock sell-off spurred by China’s DeepSeek: Live updates

The S&P 500 and Nasdaq Composite were down sharply Monday on concern about an artificial intelligence stock bubble popping because of the emergence of Chinese startup DeepSeek, which has possibly made a competitive AI model for a fraction of the billions Silicon Valley is spending.

The Nasdaq Composite lost 3.1%, and the S&P 500 slid 1.5%. The Dow Jones Industrial Average added 0.6% thanks to gains in Apple, Johnson & Johnson and Travelers.

Last week, DeepSeek released R1, an open-source reasoning model that reportedly outperformed OpenAI’s in several tests, and has climbed the charts at app stores. DeepSeek said the initial version of its large language model, launched in late December, cost less than $6 million to design. While Wall Street questions that figure, the startup’s claims are nonetheless raising concern that big AI models could be built out with much less investment.

AI darling Nvidia dropped 18%, Broadcom lost 17%, and AMD shed 7%. Microsoft lost 2%. Palantir was hit for 6%. Megacap tech titan Amazon shed 1%.

Derivative plays from the AI buildout such as power providers were also hit big. Constellation Energy lost 21%, while Vistra dropped 30%.

“It’s a good example of selling first and asking questions later, and investors sort of feeling that valuations are a bit stretched for technology in general and for semiconductors in particular,” said Sam Stovall, chief investment strategist at CFRA Research. “We’re going to have volatility, especially when we’re dealing with a richly valued market and exogenous events.”

On the other hand, a rotation into more defensive areas of the market helped eased Monday’s losses.

“What I’ve also been encouraged by is investors are not bailing out of stocks necessarily, but are rotating into the defensive areas, like consumer staples, healthcare, real estate,” Stovall added. “The market at least seems to be coming back.”

Monday’s sharp declines come as traders brace for a major week, with “Magnificent Seven” members Meta, Microsoft, Tesla and Apple all due to report their latest quarterly results.

On top of that, the Federal Reserve will hold its first policy meeting of the year, deciding on the level of interest rates Wednesday. Fed funds futures are pricing in a more than 99% chance that the central bank leaves interest rates unchanged, according to CMEGroup’s FedWatch Tool.

Tech-heavy Nasdaq closes 3% lower