As a Chinese competitor threatens to end the artificial-intelligence frenzy that has caused a spending snab, Wall Street’s superstars are soaring.
In midday trading on Monday, the S&, P 500 dropped 1.7 percent and was on its way to its worst day in more than a month. Nvidia’s stock dropped 14.4 percent, and the Nasdaq composite fell 2.8%, making these stocks the heaviest losses.
Stocks outside AI-related industries held up much better, though, and the Dow Jones Industrial Average was down just 54 points, or 0.1 percent, as of 11: 05 am in New York (16: 05 GMT). The Dow had briefly been on track for a modest gain earlier in the morning, whose businesses are significantly less tech-focused than the S&, P 500, and Nasdaq.
China caused a shock to the financial markets when a business called DeepSeek claimed to have created a large language model that would cost less than the cost of competing with American giants.
Analysts said the success of DeepSeek’s app, which had already topped Apple’s App Store by Monday morning, would be particularly impressive given how the US government has restricted Chinese access to the best AI chips.
Marc Andreessen, a Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek’s R1 model was AI’s “Sputnik moment”, referencing the Soviet Union’s launch of a satellite that marked the start of the space race with the US in the late 1950s.
One of the most amazing and impressive breakthroughs I’ve ever seen, he said in a separate post, calling DeepSeek R1 “a profound gift to the world.”
However, there is still skepticism about how much the announcement from DeepSeek will ultimately impact the AI supply chain, starting with chip manufacturers and utilities hoping to electrify massive data centers that are consuming computing power.
According to Dan Ives, an analyst with Wedbush Securities, “It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used because there will be many skeptics around this issue given the information is coming from China.”
DeepSeek’s announcement nevertheless rocked stock markets worldwide.
In Amsterdam, Dutch chip supplier ASML slid 6.6 percent. Japan’s Softbank Group Corp. lost 8.3% in Tokyo as it regained its former position before jumping on a White House announcement to join a partnership to invest up to $500 billion in AI infrastructure.
And on Wall Street, shares of Constellation Energy sank 19 percent. To provide power for Microsoft’s data centers, the company has announced that it will restart the Three Mile Island nuclear power plant that has been shut down.
Investors were turned to bonds as a result of all the worries, which are generally considered to be safer investments than stocks.
The “Magnificent Seven”
The one-time AI winners, whose stocks had recently soared in anticipation that the investment would transform the world economy and generate enormous profits along the way, are now in a sharp turnaround.
Before Monday’s drop, Nvidia’s stock, for instance, had soared from less than $20 to more than $140 in less than two years.
Other significant tech companies had benefited from the uprising, as did their stock prices. Mark Zuckerberg, the CEO of Meta Platforms, announced just on Friday that he anticipated an investment of up to $65 billion in the year while promoting a datacenter Meta is building in Louisiana, which would cover a sizable portion of Manhattan.
A select few of these businesses have taken on the moniker of the “Magnificent Seven,” which is becoming increasingly popular. These companies — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — alone accounted for more than half of the S&, P 500’s total return last year, according to S&, P Dow Jones Indices.
Their enormous sizes, in turn, have given them a lot of control over the S&, P 500, and other indexes that give larger companies more weight. It demonstrates the danger of placing too much money on a select few profitable stocks, a risk that market experts refer to as “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.
Source: Aljazeera
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