A groundbreaking AI breakthrough from China’s DeepSeek caused stock market turmoil on Monday, which led to steep declines across AI-linked securities. The S&P 500 dropped by 1.7% during the morning session, which became its worst performance since a month ago. The AI boom cornerstone Nvidia experienced a devastating 14.4% decline, which pulled the Nasdaq composite down 2.8%. The Dow Jones Industrial Average demonstrated resistance to tech-related losses with only a minimal 0.1% decrease.
DeepSeek announced its R1 AI model, which matches the capabilities of U.S. industry leaders yet costs much less, creating waves throughout worldwide markets. The app’s quick ascent to Apple’s App Store strengthened its claims even though experts questioned how the company handled U.S. chip restrictions. Silicon Valley venture capitalist Marc Andreessen compared DeepSeek’s AI breakthrough to the Soviet Union’s Sputnik launch by calling it AI’s “Sputnik moment.”
Critics doubt the permanent effects that the recent announcement will create in the AI supply chain. DeepSeek’s success at bypassing U.S. chip restrictions remains unclear to many observers because of the company’s questionable credibility, according to Dan Ives of Wedbush Securities.
Global markets reacted strongly. The stock prices of Dutch chipmaker ASML declined by 6.6%, while Japan’s SoftBank dropped 8.3%, and U.S.-based Constellation Energy suffered a 19% decline as investors became more concerned about potential disruptions in AI-related sectors. During the market turmoil, bonds emerged as preferred options because they offered perceived safety to investors.
The recent market decline demonstrates how dominant tech stocks create excessive index concentration risks in the S&P 500. Investors showed initial alarm after Monday’s market events, but experts warn against excessive panic. According to Brian Jacobsen at Annex Wealth Management, the news reports may be exaggerated while presenting both potential market reversals and fresh investment prospects.
