U.S. Stocks Sink Amid Fears Over DeepSeek and Chinese A.I. Advancements

Advances in artificial intelligence by Chinese upstarts rattled U.S. markets on Monday, with the threat of greater competition prompting a slide in shares of the biggest technology companies.

The Chinese A.I. company DeepSeek has said it can match the abilities of cutting-edge chatbots while using a fraction of the specialized computer chips that leading A.I. companies rely on. That’s prompted investors to rethink the heady valuations of companies like Nvidia, whose equipment powers the most advanced A.I. systems, as well as the enormous investments that companies like Alphabet, Meta and OpenAI are making to build their businesses.

On Monday, the S&P 500 index fell 1.5 percent, and the tech-heavy Nasdaq dropped 3.1 percent. Nvidia was hit hard, plunging 16.9 percent and losing roughly $600 billion in market value. Falling tech stocks also dented market indexes in Europe and Japan.

Excitement over the prospects for A.I. had helped send technology stocks soaring over the past year, but concerns have been rising, too. Investors have become increasingly worried that the small cohort of tech companies that drove the broader market’s gains won’t live up to the lofty expectations that their sky-high prices suggest.

The pain was concentrated at companies at the forefront of the A.I. boom, including the multitrillion-dollar behemoths that drove the largest back-to-back annual gains for U.S. markets since the 1990s. Alphabet and Microsoft fell, and in addition to Nvidia, other chipmakers like Arm, Broadcom and Micron, and semiconductor equipment specialists like ASML slid.

DeepSeek could be the start of a new phase in how investors think about A.I., said Steve Sosnick, chief strategist at Interactive Brokers. He called it a “big slap in the face” for investors that could reset the way they calculate risk.

The Chinese company unveiled its new system last month but grabbed the tech world’s attention late last week with a research paper detailing how it built the technology. That “serves as a reminder that competition in the global A.I. arena is intensifying, and Nvidia may not be in the pole position forever,” Charu Chanana, chief investment strategist at Saxo Bank, wrote in a research note.

DeepSeek’s chatbot became the most-downloaded free app in Apple’s App Store in the United States on Monday, overtaking OpenAI’s ChatGPT. The company temporarily limited new registrations, in response to what it described as “large-scale malicious attacks” on its service.

Shares of Google’s parent Alphabet and Microsoft, which have bet heavily on A.I., fell 4.2 and 2.1 percent on Monday. Oracle, which is a partner in a joint venture with OpenAI and SoftBank, unveiled at an event with President Trump last week, dropped almost 14 percent. SoftBank shed more than 8 percent during trading in Tokyo.

(The New York Times has sued OpenAI and its partner, Microsoft, claiming copyright infringement of news content related to A.I. systems. The two tech companies have denied the suit’s claims.)

Some tech giants bucked the trend. Meta, which last week announced a big jump in its spending plans for data centers, wobbled in early trading before posting a small gain. Apple, which was relatively late to enter the A.I. arms race, rose 3.25 percent.

The overall tech sector of the S&P 500 has had a rocky start to the year, losing 4 percent of its value, while every other major sector has gained over the same period. Because of the tech industry’s size and influence, this has weighed on the S&P 500 index, which is up 2.2 percent for the year.

The recent upheaval casts a cloud over the tech giants as Meta, Microsoft and others prepare to present their latest quarterly earnings this week. Looking beyond bumper profits from the past, analysts could press executives about their companies’ financial prospects in the future under stiffer global competition.

“The market naturally will worry about demand growth in computing power,” analysts at Jefferies wrote in a note. DeepSeek’s apparent breakthroughs on cost and efficiency “could prompt investors to ask hard questions” of tech leaders about their weighty investments in chips and data centers, they added.

Venture capital firms have also bet big on A.I., investing some $130 billion on start-ups in the field last year, according to PitchBook. One out of every three venture dollars in total went to an A.I. startup, the data provider noted.

The turmoil also pummeled the stocks of utility companies that have opened new lines of business serving the voracious power needs of data centers. Power companies like Constellation Energy, GE Vernova and Vistra each plunged more than 20 percent, partly reversing a long-running rally that has seen the power producer’s stock more than double over the past 12 months.

U.S. Treasury yields fell sharply, as they often do when investors seek havens during times of turbulence. Yields move inversely to the price of debt, meaning that the value of Treasuries jumped on Monday.

That weighed on the value of the dollar, which fell modestly against a basket of currencies of major U.S. trading partners. These moves faded somewhat in the afternoon as investors refocused on this week’s meeting of Federal Reserve officials, who are expected to pause their campaign of interest-rate cuts.

Mr. Trump has promised to accelerate the production of American-made A.I. to compete against China for global leadership in the technology. Last week, he signed an executive order aimed at “removing barriers” to the development of artificial intelligence. As the U.S. government works to maintain the country’s lead in the A.I. race, it is trying to limit the number of powerful chips, like those made by Nvidia, that can be sold to China and other rivals.

While acknowledging the potential of DeepSeek’s systems, analysts at Bernstein noted that their “initial reaction does not include panic.” Any computing capacity freed up by more efficient A.I. systems would be absorbed by fast-growing demand, they said: “We are still going to need, and get, a lot of chips.”

Danielle Kaye and Sheera Frenkel contributed reporting.