US close: Nasdaq drops 3% as AI stocks hammered by DeepSeek news

(Sharecast News) - A sell-off in the tech sector drove the S&P 500 and Nasdaq firmly into the red on Monday, as concerns about a bubble in the US artificial intelligence industry hammered market sentiment. The S&P 500 dropped 1.5% to 6,012.28, falling for the second straight day after settling at a new record closing high of 6,118.71 last Thursday. The tech-heavy Nasdaq tanked 3.1% to 19,341.83, with heavyweight Nvidia plummeting 17%.

Meanwhile, the Dow gained 0.7% to 44,713.58 - its highest close since 5 December - with economic bellwethers and consumer-facing stocks benefitting from a rout in the high-growth tech sector.

News that Chinese startup DeepSeek had launched a free AI assistant it claims uses lower-cost chips and less data weighed heavily on share prices in the US-listed tech sector.

DeepSeek's open-source AI model was reportedly comparable with those of OpenAI, Google and Meta despite the company spending just $6m on its base model, compared with the hundreds of millions (if not billions) of dollars that the US firms have shelled out.

"For the past couple of years AI has been seen as the magic sauce that's seduced investors into accepting higher valuations for companies that are at the same time investing more and more capital into the pursuit of tech dominance. Whilst supercharged spending delivers supercharged growth that's all well and good, until something comes along and undercuts the big boys," said Danni Hewson, head of financial analysis at AJ Bell.

"With the poster child of AI chip companies, Nvidia, sinking to a near four-month low, this manic Monday has hit hard, coming off the back of a Trump infused rally," Hewson said.

On the macro front, the Chicago Federal Reserve's national activity index increased to 0.15 in December, the highest reading in seven months, up from November's upwardly revised reading of -0.01.

Elsewhere, US new home sales rose by 3.6% month-on-month to a seasonally adjusted rate of 698,000 in December, according to the Census Bureau, the biggest increase since September and firmly above market expectations for a reading of 670,000.

Later in the week, the Federal Open Markets Committee will hold its first two-day policy meeting of 2025 on Tuesday, with the central bank set to make its interest rate decision on Wednesday. Economists expect the Fed to leave interest rates unchanged.

Nvidia leads AI stocks lower

Chip stocks were by far the worst performers of the day, with AI darlings Nvidia and Broadcom tanking 17% and AMD dropping 6%.

Tesla was also 2% lower, ahead of a fourth-quarter earnings report on Wednesday evening. The electric carmaker was making headlines on Monday after its Shanghai division sued the European Commission on the back of sky-high tariffs placed on China-made EVs.

It's set to be a busy few days for the sector, with the likes of Meta, Microsoft and Apple all scheduled to report results before the week is out. Meta and Apple rose, while Microsoft fell.

Meanwhile, cyclical, household names and economic bellwethers performed well, including Johnson & Johnson, Procter & Gamble, Coca-Cola, Nike, McDonald's and Walmart.

AT&T was a standout performer, rising 6% after reporting strong fourth-quarter results that beat market consensus, and predicting further growth in revenues and profits this year.

S&P 500 - Risers

Amer Water Works (AWK) $129.95 6.84% AT&T Inc. (T) $24.14 6.25% Sba Communications Corp. (SBAC) $207.94 5.64% Consolidated Edison Inc. (ED) $94.89 4.74% Crown Castle International (CCI) $92.43 4.45% FirstEnergy Corp. (FE) $40.88 4.26% Dominion Energy Inc. (D) $55.73 4.21% Johnson & Johnson (JNJ) $152.89 4.13% Lennar Corp. Class A (LEN) $137.82 4.13% CIGNA Corp. (CI) $305.72 4.11%

S&P 500 - Fallers

Arista Networks Inc. (ANET) $100.30 -22.35% Quanta Services Inc. (PWR) $292.43 -18.32% Broadcom Inc. (AVGO) $202.13 -17.40% Nvidia Corp. (NVDA) $118.42 -16.97% CenturyLink Inc. (LUMN) $4.97 -16.05% Eaton Corporation plc (ETN) $311.55 -15.56% Fluor Corp. (FLR) $46.34 -15.08% Oracle Corp. (ORCL) $158.28 -13.79% NRG Energy Inc. (NRG) $97.49 -13.24% Amphenol Corp. (APH) $67.49 -12.57%

Nasdaq 100 - Risers

Dollar Tree Inc (DLTR) $74.95 3.41% Apple Inc. (AAPL) $229.86 3.18% eBay Inc. (EBAY) $66.84 3.13% Kraft Heinz Co. (KHC) $30.20 3.04% CSX Corp. (CSX) $33.64 2.91% Amgen Inc. (AMGN) $282.95 2.73% Costco Wholesale Corp. (COST) $965.25 2.72% Cintas Corp. (CTAS) $202.56 2.62% Gilead Sciences Inc. (GILD) $95.35 2.45% Baidu Inc. (BIDU) $88.51 2.44%

Nasdaq 100 - Fallers

Broadcom Inc. (AVGO) $202.13 -17.40% Nvidia Corp. (NVDA) $118.42 -16.97% Micron Technology Inc. (MU) $91.11 -11.71% Cadence Design Systems Inc. (CDNS) $289.87 -9.55% Applied Materials Inc. (AMAT) $174.57 -6.52% Synopsys Inc. (SNPS) $510.73 -6.49% KLA-Tencor Corp. (KLAC) $702.71 -6.28% Asml Holdings N.V. (ASML) $690.15 -5.75% Lam Research Corp. (LRCX) $75.63 -5.08% Cisco Systems Inc. (CSCO) $59.08 -5.06%

Dow Jones - Risers

Johnson & Johnson (JNJ) $152.89 4.13% Salesforce.Com Inc. (CRM) $347.10 3.96% Travelers Company Inc. (TRV) $251.01 3.78% Procter & Gamble Co. (PG) $169.66 3.38% Apple Inc. (AAPL) $229.86 3.18% Coca-Cola Co. (KO) $63.87 3.15% Walmart Inc. (WMT) $97.40 2.79% Verizon Communications Inc. (VZ) $40.64 2.78% Amgen Inc. (AMGN) $282.95 2.73% Nike Inc. (NKE) $75.58 2.73%

Dow Jones - Fallers

Cisco Systems Inc. (CSCO) $59.08 -5.06% Walgreens Boots Alliance, Inc. (WBA) $11.34 -4.47% Caterpillar Inc. (CAT) $394.98 -3.10% Intel Corp. (INTC) $20.29 -2.59% Microsoft Corp. (MSFT) $434.56 -2.14% American Express Co. (AXP) $316.42 -1.53% Goldman Sachs Group Inc. (GS) $633.28 -0.57% Boeing Co. (BA) $175.16 -0.51% International Business Machines Corporation (CDI) (IBM) $224.13 -0.30%