Tech stocks tumble as a Chinese competitor threatens to upend the AI industry; Nvidia down 17%
By STAN CHOE, AP Business WriterUpdated Jan 27, 2025 8:49 a.m.
NEW YORK (AP) — Wall Street’s superstars are tumbling Monday as a competitor from China threatens to upend the artificial-intelligence frenzy they've been feasting on.
The S&P 500 was down 1.9% in midday trading and heading for its worst day in more than a month. Big Tech stocks took some of the heaviest losses, with Nvidia down 17.6%, and they dragged the Nasdaq composite down 3.3%.
Stocks outside of AI-related industries held up much better, though, and the Dow Jones Industrial Average was down just 58 points, or 0.1%, as of 11:40 a.m. Eastern time. The Dow, which has much less of an emphasis on tech than the S&P 500 and Nasdaq, had briefly been on track for a small gain earlier in the morning.
The shock to financial markets came from China, where a company called DeepSeek said it had developed a large language model that can compete with U.S. giants but at a fraction of the cost. DeepSeek’s app had already hit the top of Apple’s App Store chart by Monday morning, and analysts said such a feat would be particularly impressive given how the U.S. government has restricted Chinese access to top AI chips.
Skepticism, though, remains about how much DeepSeek’s announcement will ultimately shake the AI supply chain, from the chip makers making semiconductors to the utilities hoping to electrify vast data centers gobbling up computing power.
“It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used as there will be many skeptics around this issue given the information is coming from China,” according to Dan Ives, an analyst with Wedbush Securities.
DeepSeek’s disruption nevertheless rocked AI-related stocks worldwide.
In Amsterdam, Dutch chip supplier ASML slid 7.4%. In Tokyo, Japan’s Softbank Group Corp. lost 8.3% to pull closer to where it was before leaping on an announcement trumpeted by the White House that it was joining a partnership to invest up to $500 billion in AI infrastructure.
And on Wall Street, shares of Constellation Energy lost nearly a fifth of its value, 19.5%. The company has said it would restart the shuttered Three Mile Island nuclear power plant to supply power for data centers for Microsoft.
All the worries sent investors toward bonds, which can be safer investments than any stock. The rush pushed the yield of the 10-year Treasury down to 4.54% from 4.62% late Friday.
It’s a sharp turnaround for the AI winners, which had soared in recent years on hopes that all the investment pouring in would remake the global economy and deliver gargantuan profits along the way. Such stellar performances also raised criticism that their stock prices had gone too far, too fast.
Before Monday's drop, Nvidia’s stock had soared from less than $20 to more than $140 in less than two years, for example.
Other Big Tech companies had also joined in the frenzy, and their stock prices had benefited too. It was just on Friday that Meta Platforms CEO Mark Zuckerberg was saying he expects his company to invest up to $65 billion this year and grow its AI teams significantly, while talking up a datacenter in Louisiana that will be so large it would cover a significant part of Manhattan.
A small group of such companies has become so dominant that they’ve come to be known as the “Magnificent Seven.” These companies — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — alone accounted for more than half the S&P 500’s total return last year, according to S&P Dow Jones Indices.
Their immense sizes in turn have also given them huge sway over the S&P 500 and other indexes that give more weight to bigger companies. It shows the risk of betting too much on just a few winning stocks, something that market experts call “concentration risk.”
That “can feel good when those few names or ideas are on the ascent, but it is even more dangerous when disruptions take place,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Still, he suggested not overreacting to Monday’s sharp swings. “It is possible that the news out of China could be overstated and then we could see a reversal of the recent market moves,” Jacobsen said. “It is also possible that the news is true, but then that would present new investment opportunities.”
More big swings may be ahead. Apple, Meta Platforms, Microsoft and Tesla are all on the schedule this upcoming week to report how much profit they made at the end of 2024.
The pressure is on companies to keep delivering strong profits, particularly after a recent jump in Treasury yields, even with Monday's decline. When bonds are paying more in interest, they put downward pressure on stock prices.
So far, big U.S. companies have been reporting better results than analysts expected. AT&T became the latest on Monday, and its stock rose 6%.
In stock markets abroad, movements for broad indexes across Europe and Asia weren’t as forceful as for the big U.S. tech stocks. France’s CAC 40 fell 0.2%, and Germany’s DAX lost 0.5%.
In Asia, stocks edged 0.1% lower in Shanghai after a survey of manufacturers showed export orders in China dropping to a five-month low.
The Federal Reserve holds its latest policy meeting later this week. Traders don’t expect recent weak data to push the Fed to cut its main interest rate. They’re virtually certain the central bank will hold steady, according to data from CME Group.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
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Lawmakers unveil measure banning DeepSeek on government devices
by Miranda Nazzaro - 02/06/25 4:42 PM ET
Adobe Stock
An engineer uses the DeepSeek R1 model chat to solve a reasoning problem.
A bipartisan pair of lawmakers are introducing a measure this week to ban Chinese artificial intelligence app DeepSeek from government devices, arguing the app “compromises American users’ sensitive data.”
The measure, called “No DeepSeek on Government Devices Act,” will be introduced on Friday by Reps. Josh Gottheimer (D-N.J.) and Darin LaHood (R-Ill.), who serve on the House Permanent Select Committee on Intelligence.
“The technology race with the Chinese Communist Party (CCP) is not one the United States can afford to lose,” LaHood said in a Thursday statement. “The national security threat that DeepSeek — a CCP-affiliated company — poses to the United States is alarming. DeepSeek’s generative AI program acquires the data of U.S. users and stores the information for unidentified use by the CCP.”
The lawmakers pointed to a security research study published Wednesday that found DeepSeek’s website contains computer code with the potential to send user login information to China Mobile, a Chinese state-owned telecommunications company that is prohibited from operating in the United States. The study was reported Wednesday by The Associated Press.
DeepSeek is based in China, but is technically not directly connected to the CCP. In China, however, companies are required to hand over data if requested by the government, further stoking fears over privacy and national security.
DeepSeek, a one-year-old startup, launched an AI model called R1 last month, which quickly drew comparisons to models offered by OpenAI or Google models. The app surged to the top of the app store shortly after its release and sent U.S. stocks plunging.
Gottheimer called the app a “five alarm national security fire,” in a statement Thursday.
“We must get to the bottom of DeepSeek’s malign activities. We simply can’t risk the CCP infiltrating the devices of our government officials and jeopardizing our national security,” he said.
Several lawmakers have expressed national security concerns about DeepSeek.
In a letter to national security adviser Mike Waltz last week, Reps. John Moolenaar (R-Mich.) and Raja Krishnamoorthi (D-Ill.) urged him to consider prohibiting the federal government from acquiring AI systems based on Chinese models, like DeepSeek. They also urged the administration to restrict the use of these models in critical infrastructure.
The concerns echo the worries that surrounded TikTok, which was first banned on government devices before Congress passed a bill last year that required its China-based company ByteDance to divest from the app or face a nationwide ban.
The law received wide bipartisan support and was signed by President Biden, giving ByteDance until Jan. 19 to come to a divestiture agreement. ByteDance did not divest on time, and the app went dark for less than a day before President Trump announced plans to delay the ban and give the company more time.
The Hill reached out to DeepSeek and China Mobile for further comment.
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