DeepSeek, a Chinese artificial intelligence (AI) app that has soared to the top of the U.S. App Store and overtaken OpenAI’s ChatGPT, flooded the financial markets with red ink at the Jan. 27 opening bell.
The tech-heavy Nasdaq Composite Index declined by 3 percent to kick off the trading week. The S&P 500 declined by nearly 2 percent, while the blue-chip Dow Jones Industrial Average shed about 100 points.
Dow Jones Market Data projects that the market rout erased more than $1 trillion in value in early trading.
Investors were rattled by the Chinese tech startup for its efficient and cost-effective open-source AI models. The company, founded in 2023, constructed models—DeepSeek-V3 and DeepSeek-R1—that outperform premier models from Google, Meta, and OpenAI on tasks such as coding, mathematics, and natural language reasoning.
This sparked fears across the markets because DeepSeek’s models appear to be developed at a fraction of the cost, using less energy and fewer employees.
Wall Street and Silicon Valley might be rethinking their calculations, according to Giuseppe Sette, the president of AI market research company Reflexivity. This could have vast implications for industry titans such as Nvidia, various semiconductor businesses, and even the energy sector.
Looking at the Financial Markets
Nvidia fell by about 11 percent, Broadcom declined by nearly 12 percent, and Marvell Technology slumped by close to 14 percent.Several other chip stocks declined, including Advanced Micro Devices (down 4 percent), Super Micro Computer (down 6 percent), and ASML Holding (down 7 percent). Additionally, Oracle, a major player in the software industry, dropped by more than 8 percent.
According to Mark Klein, CEO of SuRo Capital, DeepSeek could reduce demand for Nvidia chips and affect the company’s sales. Klein said its cost-effective measures could also stimulate demand for hardware.
“Even if training costs decrease, companies might still invest in more powerful systems for incremental performance gains, rather than minimizing costs for equivalent results,” he told The Epoch Times.
Other market observers said they believe the headlines could be good news for many U.S. companies in the long run.
“Lowering the price will increase demand,” Nancy Tengler, CEO and chief information officer of Laffer Tengler Investments, told The Epoch Times.
Energy stocks that were buoyed by the AI wave slumped on Jan. 27. Constellation Energy plunged by 19 percent, GE Verona plummeted by 18 percent, and Vistra declined by 23 percent.
Natural gas prices crashed approximately 8 percent to $3.71 per million British thermal units on the New York Mercantile Exchange. The AI craze has partly fueled the rally in natural gas in recent months.
U.S. Treasury yields were down across the board as investors sought shelter from the market-wide sell-off.
The benchmark 10-year yield slipped below 4.55 percent. The two-year yield sank to 4.21 percent, while the 30-year bond fell to 4.79 percent.
Big Tech reacted to the Chinese startup’s AI development.
Microsoft CEO Satya Nadella discussed DeepSeek’s new R1 model at the World Economic Forum in Davos, Switzerland, noting its efficiency and effectiveness.
“We should take the developments out of China very, very seriously,” he said.
Four of the Magnificent Seven stocks are scheduled to release their quarterly earnings reports in the coming days.
Meta and Microsoft will release their earnings reports on Jan. 29. Apple will release its earnings on Jan. 30.
Market watchers will also observe the new U.S. administration’s response this week. President Donald Trump has promised tariffs on Chinese products as early as Feb. 1.
Jay Woods, Freedom Capital Markets’ chief global strategist, said he believes this might be the peak of the market’s “knee-jerk reaction.”
“The initial reaction has been a sell-off without really knowing the true threat that this is,” Woods told The Epoch Times. “Let’s see how that initial sell-off holds throughout the day. If we can rally back from these initial lows, then this knee-jerk reaction may be as bad as it gets for now. For now, the initial reaction is to sell first and ask questions later.”
The other potential market mover this week is the Federal Reserve, which will conclude its two-day policy meeting on Jan. 29.
Investors will likely pay close attention to what Federal Reserve Chair Jerome Powell says during the post-meeting press conference.
Last month, the U.S. central bank signaled fewer interest rate cuts this year, from four quarter-point reductions to two, mainly in response to inflation risks.
Traders are not expecting the next rate cut until June or July, according to the CME FedWatch Tool.
