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Nasdaq tanks, S&P 500 drops as AI fears rock tech | Finance news

January 27, 2025

Nasdaq tanks, S&P 500 drops as AI fears rock tech | finance news

The Nasdaq plunged on Monday to guide a stock rout on Wall Avenue as a Chinese language startup rattled religion in US management and profitability in AI, taking a hammer to Nvidia (NVDA) and different Huge Tech shares.

The tech-heavy Nasdaq Composite (^IXIC) sank practically 3%, whereas the S&P 500 (^GSPC) tumbled 1.7%. The Dow Jones Industrial Common (^DJI) fell 0.2% on the heels of a successful week for the most important gauges.

Markets have been rattled by claims by China’s DeepSeek that its AI assistant makes use of cheaper chips and fewer knowledge than main fashions, however performs equally nicely. A surge in DeepSeek’s recognition has spurred a scramble by buyers to reassess bets that AI demand-driven growth will keep fueling positive aspects for shares.

AI bellwether Nvidia’s shares tumbled over 11%, as chip-related names took a bruising. ASML (ASML) misplaced 8%, whereas Arm (ARM), Broadcom (AVGO), and Micron Expertise (MU) additionally bought hammered.

Shares of Meta (META) and Microsoft (MSFT) each slid more than 4% amid worries about megacaps’ hefty investment in AI. Tesla (TSLA) and Amazon (AMZN) additionally misplaced ground as techs bought off throughout the board.

Huge Tech earnings season kicks off this week, highlighted by outcomes from Apple (AAPL), Tesla, Meta, and Microsoft. Eyes shall be on steering for future revenue as DeepSeek casts doubt on prospects for income.

Buyers began to flock to belongings seen as secure as shares plunged. The ten-year Treasury yield (^TNX) fell as a lot as 12 foundation factors to 4.50%, the bottom degree in over a month, whereas haven currencies together with the yen and the Swiss franc surged.

Within the background, trade conflict issues revived during a face-off between President Donald Trump and Colombia over the weekend. Trump threatened to impose 25% tariffs on the nation’s items in a row over deported migrants earlier than placing the duties on pause after a deal was reached.

The dispute underlined issues that Trump will not maintain back on turning to tariffs as a option to push by means of a vary of coverage goals.

The Federal Reserve will maintain its first coverage assembly of 2025 this week, with officers are already on watch for quick-fire strikes by Trump that would pose challenges to the central bank. The president has known as for the Fed to decrease rates of interest, signaling a coming conflict with policymakers, who start their two-day gathering on Tuesday.

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Nasdaq sinks more than 3% as AI fears spark sell-off, Nvidia tumbles 13%

The Nasdaq tumbled on Monday amid growing skepticism over US artificial intelligence dominance after Chinese language AI startup DeepSeek gained main consideration over the weekend.

The tech-heavy Nasdaq Composite (^IXIC) sank more than 3.5%, whereas the S&P 500 (^GSPC) slid over 2%. The Dow Jones Industrial Common (^DJI) fell 0.5%, or more than 200 factors.

DeepSeek’s not too long ago launched product, which is reportedly more environment friendly and requires much less chips than Ai fashions from Open AI or Meta (META), has raised questions over the US’s place in AI. It has additionally prompted a rethink on valuations, together with that of chip chief Nvidia (NVDA), whose stock sank as a lot as 13%.

Different chip-related shares fell. Semiconductor tools maker ASML (ASML) misplaced more than 8%, whereas Arm (ARM), Broadcom (AVGO), and Micron Expertise (MU) additionally bought hammered.

Wall Avenue analysts pushed back in opposition to the market response.

“I don’t think DeepSeek is doomsday for AI infrastructure,” Stacy Rasgon, managing director and senior analyst at Bernstein, informed Yahoo Finance.

“The models they built are fantastic — they really are — and they’ve pulled a number of levers on efficiency. But what they’re doing is not miraculous, either, or unknown to other top AI researchers or AI labs that are out there,” he added.
DeepSeek is the primary occasion Monday, however Wall Avenue reiterates ‘tariffs are coming’

Earlier than Sunday evening’s rout in futures turned investor consideration squarely to fears about what China’s DeepSeek AI may imply for the longer term of the US-centric AI investment increase, this previous weekend noticed President Trump remind buyers that tariffs are nonetheless on the high of his agenda.

Although a back-and-forth between the White Home and Colombia noticed the South American nation finally settle for a deal to soak up migrants being deported from the US to keep away from speedy 25% tariffs on exports sure for the US, the pace with which the president acted is the important thing takeaway for buyers.

“Tariffs are coming,” wrote Neil Shearing, group chief economist at Capital Economics in a word on Monday.

“That seems to be one of the key takeaways from an extraordinary week which began with relief that the new president’s inaugural address skipped talk of tariffs, but was followed by a stream of threats from Donald Trump to start raising duties on leading trade partners — and ended with reports suggesting tariffs could be imposed on Mexico and Canada as soon as this weekend.

“All of this has poured some cold water on the thought, nonetheless lurking in some components of the market, that the menace to impose tariffs was bluster. It now appears probably that larger tariffs are within the pipeline and, as we now have embedded in our central forecasts, that they might be imposed comparatively quickly.”

Trump’s first week in office, as Shearing notes, was greeted with relief from investors as Trump declined to impose new duties on any major trade partners in an executive action on Monday.

The president later set a Feb. 1 deadline for taking firmer action.

How tariffs have become enmeshed with the fate of TikTok, for instance, ought to serve as a reminder that while the economic implications of tariffs are of interest to investors — notably the impact on inflation and interest rates that may result from higher tariffs — what they symbolize is more important.

Namely, tariffs are the best way for an investor trying to understand Trump’s mindset at any given point in time to get a firm answer.
Monday’s early action is the risk of stock market concentration

One of the biggest discussions among investors over the last two years has been about how concentrated the S&P 500 has become.

Meaning the percent of the value of the overall index accounted for by the biggest 10 companies is at a record high, as we see in the chart below from Truist Wealth’s Keith Lerner published earlier this month.

There is nothing inherently bad about market concentration, of course.

The most important long-term driver of stock prices is earnings growth, and the biggest companies in the market — the Magnificent Seven, most notably — have been the largest contributors to earnings growth since the AI boom began in early 2023 and are expected to remain that way through this year.

In fact, Wall Street expects Mag 7 earnings growth to reaccelerate in the second half of this year.

And what markets trade on is not what’s happening today, but what investors think will happen tomorrow. Not just the rate of change, but the expected change in the rate of change.

So when these expectations are upset, or even questioned, as seems the fairest characterization of fears about DeepSeek’s capabilities, we get reactions like what we’re seeing in stocks this morning.

Many companies and industries will see unexpected threats to their competitive standing come and go over time.

Investors will constantly be reevaluating their embedded assumptions about earnings growth and, in turn, reevaluating the terminal value of a given company’s future cash flows when discounted back to the present.

It just so happens that this process is playing out Monday morning for the market’s biggest companies, which have never played a larger role in shaping the overall stock market’s direction. And so a few pointed questions end up taking a trillion dollars off the stock market’s value.
Good morning. This is what’s taking place as we speak.
Eyes on Nvidia rout

Nvidia (NVDA) is getting pummeled pre-market by 10% on fears around China-based OpenAI rival DeepSeek. The concern? DeepSeek reportedly developed its powerful new large language model using far fewer advanced chips than US rivals are using.

I’ll have more to say on this on the Opening Bid podcast episode dropping on Yahoo Finance this morning. But the reaction sure seems overdone.

The notion that Meta (META) is suddenly going to reverse its billions of dollars being spent on AI infrastructure — powered by Nvidia chips — seems far-fetched. Further, can one even trust the claims by DeepSeek? And lastly, DeepSeek’s alleged advances are unlikely to alter the demand backdrop for Nvidia this year — if at all.

Good to actually query this kind of news completely.

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