News
China's DeepSeek AI sows doubts about US tech edge. Nasdaq, S&P 500 slide but Dow edges up
The tech-heavy Nasdaq and broad S&P 500 indexes slumped on Monday after a competitve artificial intelligence model from a Chinese startup sowed doubts about the U.S.'s approach to AI.
Losses were led by semiconductor darlings like Nvidia and Broadcom whose chips fuel AI computing. Nvidia shares closed down almost 17%, posting its biggest drop since March 2020 and erasing nearly $600 billion from the company's market cap. Broadcom fell 17.4%, and other chip stocks like Micron declined 11.67% and AMD shed 6.35%.
Chinese startup DeepSeek released on Jan. 20 a cost-efficient AI model to compete with OpenAI using a fraction of computing power, or the type of technology sold by Nvidia and other companies. DeepSeek said it cost less than $6 million to train it.
American venture capitalist Marc Andreessen called the model “ one of the most amazing and impressive breakthroughs I’ve ever seen .”
The success of DeepSeek could force companies to reevaluate computing power needs, which could cause 2026 AI spending to fall, or not grow, said Edison Lee, analyst at Jefferies. It also raises doubts about how much of a competitive edge the U.S. has in AI.
The broad S&P 500 ended down 1.46%, or 88.96 points, to 6,012.28 and the tech-heavy Nasdaq tumbled 3.07%, or 612.47 points, to 19,341.83. Both posted their worst one-day decline since Dec. 18.
The blue-chip Dow erased early losses to close up 0.65%, or 289.33 points, to 44,713.58 as investors sold riskier tech stocks and bought value shares.
The benchmark 10-year Treasury yield slid to 4.532%, also on a move to safe returns as tech stocks crumbled. That was the lowest level since Dec. 20.
Nvidia love: Nvidia stock is up over 900% since 2023. Here's why it's still a screaming buy.
Will DeepSeek kill the bull market?
DeepSeek is unlikely to bring an end to the bull run in stocks, "but it could contribute to volatility and potentially initiate a market correction, especially if investors begin to question the long-term dominance of U.S. tech giants," said technology expert Faisal Hoque, author of "TRANSCEND: Unlocking Humanity in the Age of AI."
Adam Nathan, chief executive and co-founder of AI marketing tool Blaze, actually thinks DeepSeek's "really good" for the AI industry because it introduces competition.
Before DeepSeek, the U.S. market was wedded to the idea it would take billions of dollars to develop AI.
"Smaller startups have thrown in the towel on the assumption that they could never afford the necessary (computing power) to develop their own models," said Deutsche Bank analysts in a note. "Take that advantage away and a new breed of competitors may be able to flourish."
What Trump's tariff threat to Colombia says
Over the weekend, President Donald Trump again threatened tariffs but this time, against Colombia for refusing planes returning deported migrants to the country. However, emergency 25% tariffs were averted after Colombia agreed to accept the migrants.
"By bypassing some of the largest U.S. trade partners and proceeding with tariffs on Colombia, the Trump administration signaled its readiness to fully leverage its power to ensure compliance with its immigration policy," said JP Morgan analysts Natasha Kaneva and Gregory Shearer in a note. Trump also showed he would justify imposing tariffs by declaring an economic or national security emergency through an executive order.
This "may increase concerns that the Trump administration will be more aggressive on this front than previously thought," said Chris Larkin, managing director of trading and investing at E*TRADE from Morgan Stanley.
Arabica coffee prices initially jumped to a record high on Trump's tariff threat. The U.S. sources approximately 30% of its coffee from Colombia.
Corporate news and earnings to watch
Attention around DeepSeek's AI model is likely to shine a brighter light on earnings from big U.S. tech companies this week.
"What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space," Larkin said. "That could make this week’s megacap tech earnings even more critical to market sentiment."
The so-called Magnificent Seven members, Meta (Facebook), Microsoft, Tesla and Apple are due to report their latest quarterly results this week.
The Magnificent Seven stocks are large-cap technology companies that have significant weighting in major stock indexes and have led much of the rally in stocks the past few years. They are Apple, Microsoft, Amazon, Alphabet (Google), Tesla, Meta, and Nvidia.
Companies that reported on Monday morning include:
Fed rate watch
Almost no one expects the Federal Reserve to lower rates at the end of its policy meeting on Wednesday, but investors will be looking for hints as to whether the Fed is finished cutting rates this year or will there be more to come.
The stock market decline on Monday could also influence the Fed's rate view, said analysts at Dutch bank ING.
"If this leads to a broader correction, then the Fed will be much more inclined to cut rates and will come under intense pressure to do so from President Trump," they said in a note.
"If a sense of worry starts to hit these free-spending households, they may well start to pull back on some of their consumption, and the Fed will be much more inclined to respond with lower interest rates," the analysts said.
Bitcoin drops
Bitcoin slipped in early trading, along with the rout in tech stocks as investors' shied away from riskier bets on Monday morning.
However, investors are still hopeful the Trump administration will be friendly with its cryptocurrency regulation in the longer-term.
Bitcoin was down 0.88% to $102,110.20 in late afternoon trading. During the day, the cryptocurrency crashed below the psychological $100,000 milestone for the first time since Trump returned to the White House.
(This story was updated with new information.)
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: DeepSeek AI sinks Nasdaq, S&P 500. Dow benefits on flee to safety