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A jolt of panic hit big technology stocks on Monday, with investors rattled by fears that advances in artificial intelligence by Chinese upstarts could threaten the moneymaking power of tech giants in the United States, Europe and beyond.
Nvidia was one of the hardest hit, plunging 16 percent, a move that erased hundreds of billions of dollars in market value in a stroke.
The Chinese A.I. company DeepSeek has made waves by matching the abilities of cutting-edge chatbots while using a fraction of the specialized computer chips that leading A.I. companies rely on. That has prompted investors to rethink the large returns implied by 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 Google, Meta and OpenAI are making to build their A.I. businesses.
U.S. markets tumbled, with the S&P 500 falling nearly 2 percent and the tech-heavy Nasdaq dropping about 3 percent. Tech stocks also dented market indexes in Europe and Japan.
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. Investors have fretted about whether the rally has gone too far, leaving little room for error at the small group of tech firms that now dominates the market.
For those waiting for something to shake the faith in tech valuations, 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.
In addition to Nvidia, other chipmakers like Arm, Broadcom and Micron, and semiconductor equipment specialists like ASML recorded substantial declines.
DeepSeek 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 rose to the most-downloaded free app in Apple’s App Store in the United States on Monday, overtaking OpenAI’s ChatGPT. DeepSeek 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 3 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 13 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 more than 3 percent.
The U.S. tech sector overall has had a rocky start to the year, losing about 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 about 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 past bumper profits in 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.
The turmoil also hit the stocks of utility companies that have opened new lines of business serving the voracious power needs of data centers. Constellation Energy plunged nearly 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 slipped 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, Joe Rennison and Sheera Frenkel contributed reporting.
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