Wall Street Reacts to China’s AI Challenge

NEW YORK — Wall Street’s leading stocks fell sharply on Monday as a new competitor from China threatens to disrupt the artificial intelligence (AI) boom that has fueled big gains for US companies.

The Standard & Poor’s 500 dropped 1.7%, heading for its worst day in over a month. Tech stocks, especially those in AI, were hit hard, with Nvidia falling 14.4%, and the Nasdaq composite dropping 2.8%.

While stocks outside the AI sector held up better, the Dow Jones Industrial Average was down only 0.1% by 11:05 a.m. Eastern time. The Dow had briefly been on track for a small gain earlier in the morning.

China’s DeepSeek Unveils New AI Model

The market downturn comes after a Chinese company called DeepSeek announced it had developed an AI language model that rivals those of US giants, but at a much lower cost. DeepSeek’s app quickly rose to the top of the Apple App Store, a surprising feat given the restrictions the US has placed on Chinese access to advanced AI chips.

However, analysts remain skeptical. “It’s unclear if DeepSeek found a way to bypass the chip restrictions, and there will be questions about what chips they used,” said Dan Ives, an analyst with Wedbush Securities.

Impact on Global Markets

The news of DeepSeek’s AI model caused a ripple effect in global stock markets. In Amsterdam, chip supplier ASML lost 6.6%, while Japan’s Softbank Group saw an 8.3% drop in its stock price. On Wall Street, Constellation Energy’s stock fell 16.9% after announcing plans to restart the Three Mile Island nuclear plant to power Microsoft’s data centers.

The uncertainty drove investors to safer options, with bond prices rising. The yield on the 10-year Treasury note dropped to 4.54% from 4.62% late Friday.

Big Tech’s AI Growth Faces New Risks

US AI stocks, which have seen huge gains over the past few years, are facing fresh pressure. Nvidia, for example, saw its stock soar from under $20 to over $140 before Monday’s drop. Other major tech companies, such as Meta Platforms, have also benefited from the AI boom, with Meta planning to invest up to $65 billion this year in AI infrastructure.

These companies, often referred to as the “Magnificent Seven,” have become dominant forces in the market. Together, they accounted for more than half of the S&P 500’s return last year. But their size has also led to concerns about “concentration risk,” or the danger of relying too heavily on just a few stocks.

“It’s great when these stocks are rising, but it becomes riskier if there’s a disruption,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Looking Ahead: Possible Market Volatility

Despite Monday’s sharp market moves, Jacobsen suggested investors should avoid overreacting. “It’s possible the news from China may be overstated, leading to a reversal in market trends,” he said. “If the news is true, it could open up new investment opportunities in US AI.”

Investors will be watching closely as big tech companies like Apple, Meta, Microsoft, and Tesla report their quarterly earnings this week. The market is also paying attention to the Federal Reserve’s upcoming policy meeting, though experts don’t expect weak economic data to prompt a rate cut.

Global Stock Market Movement

Elsewhere in global markets, stocks in Europe and Asia saw smaller declines. The French CAC 40 fell 0.1%, and Germany’s DAX lost 0.4%. In Asia, Shanghai stocks dipped 0.1% after a survey showed a drop in China’s export orders.

As the US AI sector faces new challenges from China, investors are weighing the future of the industry. With the ongoing competition, the AI market could see shifts that affect stock values worldwide.