Stocks Hit by AI Jitters as Traders Rush for Haven: Markets Wrap

(Bloomberg) — Wall Street had a rough start to the week on concern that a cheaper artificial intelligence-model from Chinese startup DeepSeek could make valuations of the technology that has powered the bull market tough to justify. 

From New York to London and Tokyo, equities got hammered, with the S&P 500 dropping 1.5% and the Nasdaq 100 down about 2.5%. A closely watched gauge of chipmakers plunged almost 7%. Nvidia Corp., the poster child of the AI frenzy, sank 13%. Treasuries rallied alongside haven currencies like the yen and the Swiss franc. The crypto world was also rattled, with Bitcoin tumbling.

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DEEPSEEK: RESTRICTS REGISTRATION TO CHINA MOBILE PHONE NUMBERS

“What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space,” said Chris Larkin at E*Trade from Morgan Stanley. “That could make this week’s megacap tech earnings even more critical to market sentiment.”

Monday’s plunge drove new fissures into a market narrative that prevailed since the re-election of Donald Trump in November, the America-first, tech-fueled uber bullishness that saw a clear upward path for risky assets spurred by deregulation, tax cuts and even government sponsorship of AI investment. Treasury yields, up almost half a percentage point since November, slid sharply as haven-seeking investors laid aside concern – for today, anyway – that the new president’s policies will stoke inflation.

The severity of the selloff in US assets was proportionate to the weightings of AI-enabled firms in the biggest stock indexes. Even after a recent paring to curb their influence the cohort of Nvdia, Apple Inc., Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Alphabet Inc. account for 45% of the Nasdaq 100 Index. It’s more than 30% in the S&P 500, leaving both gauges significantly exposed to concerted drops in those names.

“We don’t know whether this is the ‘Sputnik Moment’ for stocks, but this is certainly a wake up call that we are not the only game in town,” said Paul Nolte at Murphy & Sylvest Wealth Management. “That requires a lot of investors to look at the AI companies in a different way. To put these very high valuations in the stocks thinking they have cornered the market is a huge mistake and that is being re-rated this morning.”

The S&P 500 fell 1.5%. The Nasdaq 100 sank 2.4%. The Dow Jones Industrial Average was little changed. A gauge of the “Magnificent Seven” megacaps slid 2.1%. The Russell 2000 slipped 0.21. Wall Street’s “fear gauge” — the VIX — soared the most since mid-December to almost 20.

The yield on 10-year Treasuries declined six basis points to 4.56%. The Bloomberg Dollar Spot Index was little changed. Bitcoin fell 2.8% to $101,648.82.

To Matt Maley at Miller Tabak + Co.,  the idea that this company’s latest AI model is much more cost effective, and runs on much less-advanced chips, is raising some serious questions about what kind of earnings can be drawn from the AI phenomenon.

“If these companies look like they’re going to have a tough time maintaining their earnings growth (chip stocks) or a tough time reaching their earnings growth goals (the “picks and shovels” companies), it’s going to create some serious headwinds for today’s expensive stock market, he noted.

In fact, the slide in tech came at a time when the Nasdaq 100 is trading at 27 times estimated forward earnings, which is significantly above its 10-year average of 22. Nvidia, which has led the way on AI technology, has a valuation multiple of 32.

All focus will be on earnings announcements from the likes of Microsoft Corp. and Apple Inc. this week to restore confidence in the so-called Magnificent Seven group of companies.

Investors are heading into yet another pivotal Big Tech earnings cycle with the companies’ shares near record highs and valuations stretched. A key distinction this time: The group’s profit growth is projected to come in at the slowest pace in almost two years.

“This should be a fairly good earnings season, but the bar has been raised and they may not be able to live up to high expectations,” said Dan Taylor, chief investment officer at Man Numeric. “It will be very difficult for the group to perform the way it did last year, especially as valuations have increased.”

What exactly is DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January. 

The app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with OpenAI’s latest and has granted license for individuals interested in developing chatbots using the technology to build on it.

Corporate Highlights:

• UBS Group AG has begun a wave of job cuts in its home market Switzerland, with hundreds of employees receiving notice in recent weeks, according to people familiar with the matter.
• AT&T Inc. posted fourth-quarter results that beat Wall Street projections, including better-than expected increases in mobile-phone customers and fiber-based internet subscribers, driven by seasonal promotions and bundled product offerings.
• Activist investor Ancora Holdings Group has nominated nine candidates for United States Steel Corp.’s board and is pushing for the company to abandon a takeover by Nippon Steel Corp.
• SoFi Technologies Inc. published a forecast for profit that missed analysts’ estimates.
• MicroStrategy Inc. bought $1.1 billion of Bitcoin, after announcing plans for the early redemption of convertible notes and approving an increase to amount of authorized common shares.

Key events this week:

• US consumer confidence, durable goods, Tuesday
• Fed rate decision followed by news conference by Chair Jerome Powell, Wednesday
• Canada rate decision, Wednesday
• Tesla, Microsoft, Meta, ASML earnings, Wednesday
• Eurozone ECB rate decision, consumer confidence, unemployment, GDP, Thursday
• US GDP, jobless claims, Thursday
• Apple, Deutsche Bank, Thursday
• ECB rate decision followed by news conference by President Christine Lagarde, Thursday
• US personal income & spending, PCE inflation, employment cost index, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.5% as of 10:37 a.m. New York time
• The Nasdaq 100 fell 2.4%
• The Dow Jones Industrial Average was little changed
• The Stoxx Europe 600 was little changed
• The MSCI World Index fell 1.1%
• Bloomberg Magnificent 7 Total Return Index fell 2.1%
• Philadelphia Stock Exchange Semiconductor Index fell 6.7%
• The Russell 2000 Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0499
• The British pound was little changed at $1.2473
• The Japanese yen rose 0.9% to 154.58 per dollar

Cryptocurrencies

• Bitcoin fell 2.8% to $101,648.82
• Ether fell 4.5% to $3,148.57

Bonds

• The yield on 10-year Treasuries declined six basis points to 4.56%
• Germany’s 10-year yield declined two basis points to 2.55%
• Britain’s 10-year yield declined three basis points to 4.60%

Commodities

• West Texas Intermediate crude fell 1.2% to $73.76 a barrel
• Spot gold fell 1.1% to $2,741.23 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Margaryta Kirakosian, Allegra Catelli and Catherine Bosley.

©2025 Bloomberg L.P.