US stocks tumble as China’s breakthrough casts doubts on AI-fueled rally
US stocks cratered as a Chinese chatbot seemed to strike a blow to the megacap tech giants whose profitability underpins the bull market.
The S&P 500 slumped 1.5%, the Nasdaq 100 dropped 3%, and the Russell 2000 gave back 1%.
Tech stocks were at the epicenter of the sell-off, with that S&P sector off a whopping 4.9%. Consumer staples and healthcare, on the other hand, managed to rise more than 2%, while financials were up 1.1% on the day.
Nvidia, the formerly $3 trillion chip designer, suffered the largest one-day loss of market cap on record as the performance and alleged low training cost of China’s DeepSeek AI model seemingly undercut the case for spending tens of billions on its high-powered semiconductors. Nvidia, in a statement, called this “an excellent AI advancement” but contended that its GPUs were still essential for the AI boom.
Chip stocks, the “picks and shovels” trade for AI, were shelled, and the price action was even worse further upstream. Utilities were obliterated, with Vistra off nearly 30%.
DeepSeek shut registration for users outside China, saying it was the victim of a massive cyberattack. That boosted shares of cybersecurity companies like Palo Alto Networks.
Some standout performers on the upside: Salesforce is seemingly being rewarded for its capital-light approach to AI, while AT&T spiked on strong fourth-quarter earnings.
Real estate stocks, including homebuilders and mortgage lenders like Rocket Companies, also had a strong day as Treasury yields declined.
