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Friday, February 21, 2025

Tech stocks tumble as a Chinese competitor threatens to upend the AI industry; Nvidia down 16%

by

24 days ago
20250127
FILE - The New York Stock Exchange is shown in New York's Financial District on Dec. 31, 2024. (AP Photo/Peter Morgan, File)

FILE - The New York Stock Exchange is shown in New York's Financial District on Dec. 31, 2024. (AP Photo/Peter Morgan, File)

Peter Morgan

Wall Street’s su­per­stars are tum­bling Mon­day as a com­peti­tor from Chi­na threat­ens to up­end the ar­ti­fi­cial-in­tel­li­gence fren­zy they’ve been feast­ing on.

The S&P 500 was down 1.7% in af­ter­noon trad­ing and head­ing for its worst day in more than a month. Big Tech stocks took some of the heav­i­est loss­es, with Nvidia down 16%, and they dragged the Nas­daq com­pos­ite down 3.2%.

Stocks out­side of AI-re­lat­ed in­dus­tries held up much bet­ter, though, and the Dow Jones In­dus­tri­al Av­er­age was up 137 points, or 0.3%, as of 12:42 p.m. East­ern time. The Dow has much less of an em­pha­sis on tech than the S&P 500 and Nas­daq.

The shock to fi­nan­cial mar­kets came from Chi­na, where a com­pa­ny called DeepSeek said it had de­vel­oped a large lan­guage mod­el that can com­pete with U.S. gi­ants but at a frac­tion of the cost. DeepSeek had al­ready hit the top of the chart for free apps on Ap­ple’s App Store by Mon­day morn­ing, and an­a­lysts said such a feat would be par­tic­u­lar­ly im­pres­sive giv­en how the U.S. gov­ern­ment has re­strict­ed Chi­nese ac­cess to top AI chips.

Scep­ti­cism, though, re­mains about how much DeepSeek’s an­nounce­ment will ul­ti­mate­ly shake the AI sup­ply chain, from the chip mak­ers mak­ing semi­con­duc­tors to the util­i­ties hop­ing to elec­tri­fy vast da­ta cen­tres gob­bling up com­put­ing pow­er.

“It re­mains to be seen if DeepSeek found a way to work around these chip re­stric­tions rules and what chips they ul­ti­mate­ly used as there will be many scep­tics around this is­sue giv­en the in­for­ma­tion is com­ing from Chi­na,” ac­cord­ing to Dan Ives, an an­a­lyst with Wed­bush Se­cu­ri­ties.

DeepSeek’s dis­rup­tion nev­er­the­less rocked AI-re­lat­ed stocks world­wide.

In Am­s­ter­dam, Dutch chip­mak­ing equip­ment com­pa­ny ASML slid 7%. In Tokyo, Japan’s Soft­bank Group Corp. lost 8.3% to pull clos­er to where it was be­fore leap­ing on an an­nounce­ment trum­pet­ed by the White House that it was join­ing a part­ner­ship to in­vest up to $500 bil­lion in AI in­fra­struc­ture.

And on Wall Street, shares of Con­stel­la­tion En­er­gy lost near­ly a fifth of its val­ue, 19.3%. The com­pa­ny has said it would restart the shut­tered Three Mile Is­land nu­clear pow­er plant to sup­ply pow­er for da­ta cen­tres for Mi­crosoft.

All the wor­ries sent in­vestors to­ward bonds, which can be safer in­vest­ments than any stock. The rush pushed the yield of the 10-year Trea­sury down to 4.54% from 4.62% late Fri­day.

It’s a sharp turn­around for the AI win­ners, which had soared in re­cent years on hopes that all the in­vest­ment pour­ing in would re­make the glob­al econ­o­my and de­liv­er gar­gan­tu­an prof­its along the way. Such stel­lar per­for­mances al­so raised crit­i­cism that their stock prices had gone too far, too fast.

Be­fore Mon­day’s drop, Nvidia’s stock had soared from less than $20 to more than $140 in less than two years, for ex­am­ple.

Oth­er Big Tech com­pa­nies had al­so joined in the fren­zy, and their stock prices had ben­e­fit­ed too. It was just on Fri­day that Meta Plat­forms CEO Mark Zucker­berg was say­ing he ex­pects his com­pa­ny to in­vest up to $65 bil­lion this year and grow its AI teams sig­nif­i­cant­ly, while talk­ing up a dat­a­cen­tre in Louisiana that will be so large it would cov­er a sig­nif­i­cant part of Man­hat­tan.

A small group of such com­pa­nies has be­come so dom­i­nant that they’ve come to be known as the “Mag­nif­i­cent Sev­en.” These com­pa­nies — Al­pha­bet, Ama­zon, Ap­ple, Meta Plat­forms, Mi­crosoft, Nvidia and Tes­la — alone ac­count­ed for more than half the S&P 500’s to­tal re­turn last year, ac­cord­ing to S&P Dow Jones In­dices.

Their im­mense sizes in turn have al­so giv­en them huge sway over the S&P 500 and oth­er in­dex­es that give more weight to big­ger com­pa­nies. It shows the risk of bet­ting too much on just a few win­ning stocks, some­thing that mar­ket ex­perts call “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.

Still, he sug­gest­ed not over­re­act­ing to Mon­day’s sharp swings. “It is pos­si­ble that the news out of Chi­na could be over­stat­ed and then we could see a re­ver­sal of the re­cent mar­ket moves,” Ja­cob­sen said. “It is al­so pos­si­ble that the news is true, but then that would present new in­vest­ment op­por­tu­ni­ties.”

More big swings may be ahead. Ap­ple, Meta Plat­forms, Mi­crosoft and Tes­la are all on the sched­ule this up­com­ing week to re­port how much prof­it they made at the end of 2024.

The pres­sure is on com­pa­nies to keep de­liv­er­ing strong prof­its, par­tic­u­lar­ly af­ter a re­cent jump in Trea­sury yields, even with Mon­day’s de­cline. When bonds are pay­ing more in in­ter­est, they put down­ward pres­sure on stock prices.

So far, big U.S. com­pa­nies have been re­port­ing bet­ter re­sults than an­a­lysts ex­pect­ed. AT&T be­came the lat­est on Mon­day, and its stock rose 6%.

In stock mar­kets abroad, move­ments for broad in­dex­es across Eu­rope and Asia weren’t as force­ful as for the big U.S. tech stocks. France’s CAC 40 fell 0.3%, and Ger­many’s DAX lost 0.5%.

In Asia, stocks edged 0.1% low­er in Shang­hai af­ter a sur­vey of man­u­fac­tur­ers showed ex­port or­ders in Chi­na drop­ping to a five-month low.

The Fed­er­al Re­serve holds its lat­est pol­i­cy meet­ing lat­er this week. Traders don’t ex­pect re­cent weak da­ta to push the Fed to cut its main in­ter­est rate. They’re vir­tu­al­ly cer­tain the cen­tral bank will hold steady, ac­cord­ing to da­ta from CME Group. —NEW YORK (AP)

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Sto­ry by STAN CHOE | As­so­ci­at­ed Press

AP Busi­ness Writ­ers Matt Ott and Elaine Kurten­bach con­tributed.


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