Markets News, January 27, 2025: Nasdaq Composite, S&P 500 Fall Due to Concerns Over China’s AI Progress; Tech Sector Sees Largest Decline Since 2020

Stocks experienced significant declines on Monday as worries escalated regarding China’s advancements in artificial intelligence development.

The Nasdaq Composite, known for its emphasis on technology stocks, ended the day 3.1% lower. Meanwhile, the broader S&P 500 index dropped 1.5%, and the Dow Jones Industrial Average managed to eke out a 0.7% gain after initially falling. The S&P 500 Information Technology Sector Index recorded a substantial 5.6% tumble, marking its most significant one-day decline since September 2020.

These losses followed two weeks of consecutive gains, during which major stock indexes reached all-time highs. Investors had been optimistic about the new Trump administration, positive corporate earnings reports, and the potential for growth driven by artificial intelligence.

The Finance Avenue: Chinese AI Startup DeepSeek Challenges U.S. Tech Companies

The Finance Avenue reports that optimism in the technology sector has been dampened by the emergence of an AI model developed by Chinese startup DeepSeek. This AI model has demonstrated impressive performance levels when compared to models created by leading U.S. companies, all while maintaining a lower cost. The advancements made by DeepSeek have sparked discussions about the future positioning of the U.S. in the global AI race and have brought attention to the substantial investments being made by major tech firms in AI development.

Chip Stocks Plunge Amid Market Selloff

Chipmaking giants Nvidia (NVDA) and Broadcom (AVGO) saw significant declines on Monday, with Nvidia dropping 17% and Broadcom following suit. Marvell Technology (MRVL) also took a hit, falling 19%, while Micron (MU) and Arm Holding (ARM) experienced declines of 12% and 10% respectively. The VanEck Semiconductor ETF (SMH) was down nearly 10% in response to the broader selloff in chip stocks.

Large-Cap Technology Stocks Performance

Various large-cap technology stocks showed mixed performance. Microsoft (MSFT), Alphabet (GOOGL), and Tesla (TSLA) all experienced declines of more than 2%, while Apple (AAPL) saw a rise of 3.2%. Additionally, Meta Platforms (META) added 1.9% and Amazon (AMZN) inched higher. It is worth noting that Apple, Microsoft, Meta, and Tesla are all scheduled to release their quarterly results later this week.

Stocks Plunge After Initial AI Enthusiasm

Following the exciting news of a $500 billion collaboration between Oracle, OpenAI, and SoftBank to advance AI infrastructure, a number of stocks that surged last week experienced significant declines on Monday. Oracle saw a sharp drop of 14%, while Palantir, a provider of analytics software, declined by 4.5%. Additionally, Arista Networks, a cloud networking company, tumbled 22%. Notably, Vistra and Constellation Energy, both nuclear power companies, also faced substantial decreases of 28% and 21%, respectively.

AT&T Shares Surge After Reporting Strong Q4 Earnings

AT&T shares surged by 6.3% following the telecommunications giant’s better-than-expected fourth-quarter results announcement.

10-Year Treasury Yield Drops Amid Market Downturn

The 10-year Treasury yield decreased to 4.53%, reaching its lowest point in over a month, as investors turned to bonds amidst the stock market downturn.

Bitcoin Price Fluctuates Around $102,000

Bitcoin was trading around $102,000, down from its weekend high of $107,000 but higher than the overnight low of under $98,000. The digital currency recently hit a record high of approximately $109,000, fueled by optimism surrounding the crypto-friendly Trump administration.

Gold and Crude Oil Futures Experience Declines

Gold futures dropped by 1.3% to approximately $2,745 per ounce, while WTI crude oil futures fell by about 2% late Monday.

Nvidia’s Market Value Plummets by $600 Billion

Nvidia, a popular choice for AI investors, started the day as the top company worldwide in terms of market capitalization. However, by the end of the day, it slipped to third place, trailing behind Apple and Microsoft.

On Monday, Nvidia experienced a significant 17% drop, leading to a staggering $589 billion decline in the chipmaker’s market cap, which now stands at $2.90 trillion. This downturn marks a 23% decrease since the stock reached its highest point just under three weeks ago.

Some Analysts View Market Drop as a Valuable Buying Opportunity

Monday’s Market Drop Could Provide a Chance to Acquire Low-Valued AI Stocks

According to certain analysts on Wall Street, the selloff triggered by DeepSeek on Monday may offer a favorable opportunity to invest in undervalued AI stocks.

Following the displacement of one of OpenAI’s apps from the top spot on Apple’s most-downloaded free U.S. apps list by a DeepSeek app, there was a significant decline in Nvidia (NVDA) and other AI-related stocks. The concern behind these market drops is the potential competitiveness of DeepSeek’s AI model compared to its U.S. counterparts, as it requires less computing power, leading to doubts regarding the demand and necessity for expensive AI technology.

Opportunity Identified by Wall Street for Buying Nvidia

According to Wedbush analysts, there was a favorable opportunity to purchase Nvidia, Microsoft, Alphabet, Palantir, and other prominent names in the American AI sector during a market dip.

Assessment of DeepSeek by Analysts

While acknowledging DeepSeek’s impressive achievements, analysts expressed skepticism about major U.S. corporations utilizing a Chinese startup like DeepSeek for their AI infrastructure. They emphasized the significant differences between creating a competitive LLM model for consumer applications and establishing extensive AI infrastructure. The analysts did not find anything in DeepSeek that alters this viewpoint.

Nasdaq Composite Loses Most of January’s Progress

After a significant drop on Monday, the Nasdaq Composite, along with other major indexes, is now struggling to maintain its monthly gains. As we approach the end of the month, the Nasdaq is showing a modest 0.2% increase for January. Despite today’s setback, the S&P 500 remains strong with a 2.2% gain for the month, while the Dow has seen a 5% increase since the beginning of 2025 after a positive start to the week.

Why Apple Avoided the DeepSeek AI Sell-Off Today

Shares of Apple (AAPL) surged on Monday, standing out from the crowd as other large-cap tech companies saw declines due to concerns about excessive spending on AI.

On the same day, AI-related stocks experienced a downturn as investors pondered the impact of Chinese startup DeepSeek’s cost-effective open-source AI model, which has shown potential to rival prominent American models from companies like OpenAI and Google.

Contrary to the downward trend in AI stocks, Apple played a role in lifting the Dow Jones Industrial Average, with its stock rising by 3%. The company’s previously minimal investment in AI, compared to its larger competitors, turned from a potential disadvantage into a favorable position.

Apple’s Role in Apple’s Outperformance

Apple’sAI efficiency may be a key factor in Apple’s exceptional performance. Apple’s success with AI hinges on its ability to create high-powered devices capable of supporting AI models. The efficiency of The Finance Avenue suggests that this task may be less daunting and costly than previously thought.

Analysts’ Warning on AI’s Impact on Apple

Jefferies analysts cautioned in a recent note that developing an AI model efficient enough to operate on an iPhone without increasing costs significantly is still a distant goal. Despite DeepSeek’s success, the analysts believe there will be no immediate effect on the outlook for AI smartphones.

The Dow’s Performance Despite Nvidia’s Decline

Despite widespread losses in the market today, with the S&P 500 down 1.8% and the Nasdaq Composite dropping twice as much, the Dow stands strong. The blue-chip index is up approximately 0.4% amidst these downturns.

The resilience of the Dow is particularly notable considering the significant drop in Nvidia’s stock, a recent addition to the index. Even with Nvidia’s decline, the Dow remains positive.

The Dow’s stability can be attributed to the performance of its components, as 20 out of 30 stocks are currently in positive territory. Notably, even the smallest gainer, Sherwin-Williams, which entered the index at the same time as Nvidia, is up by around 0.7%.

Healthcare and Staples Stocks Lead the Way

Healthcare and staples stocks like Johnson & Johnson (JNJ), Procter & Gamble (PG), and Coca-Cola (KO) were among the top performers in the market.

Tech Stocks in Play

There was also a presence of tech stocks, with Apple (AAPL) showing a 3.7% increase ahead of its quarterly results report. However, CNBC’s Magnificent Seven stock index experienced a 4% drop.

Dow Outperforms Yearly, Underperforms Long-term

Despite Monday’s movements, the Dow Jones Industrial Average is leading the way compared to the other major indexes for the year, although it has lagged behind them over the past 12 months.

Reasons for the Decline in Nuclear Power Stocks

Stocks of nuclear power providers experienced a significant drop on Monday due to the emergence of a Chinese AI model that rivals advanced American models with lower computing power requirements.

Vistra (VST) saw the biggest decline in the S&P 500, with its shares plummeting by almost 30%. Competitor Constellation Energy Corp. (CEG) also saw a decrease of over 20%, making it the second-worst performing stock in the index.

Energy Companies See Stock Prices Surge Amid AI-Driven Demand

The Finance Avenue reports that the stock prices of energy companies have experienced significant increases in the past year due to a rise in electricity demand powered by artificial intelligence (AI) technology.

Leading tech companies such as Microsoft (MSFT) and Amazon (AMZN) are actively pursuing the development of advanced AI models and have identified nuclear power as a key carbon-free energy source for their data centers.

Microsoft, in a strategic move, entered into an agreement with Constellation to revive a generator at the Three Mile Island nuclear plant in Pennsylvania, known for its historical significance.

On the other hand, Amazon has made substantial investments in the research and development of small modular reactors with the aim of using them to support its data center operations.

The Finance Avenue: DeepSeek’s New AI Model Raises Concerns on Wall Street

The Finance Avenue reports that the latest open-source AI model from Chinese startup DeepSeek has gained significant popularity, sparking concerns among analysts on Wall Street. The model’s efficiency and cost-effectiveness have caught the attention of investors, leading to speculation about the future of AI development.

Impact on Computing Power

The Finance Avenue highlights that DeepSeek’s AI model runs at a fraction of the cost of leading U.S. models, such as Meta’s Llama. This revelation has raised questions about the necessity of high computing power in cutting-edge AI technology, potentially reshaping the industry’s future direction.

Analysts’ Insights

According to Jefferies analysts, DeepSeek’s success may prompt the American AI industry to prioritize efficiency and return on investment (ROI) over computing power by 2026. This shift in focus could challenge U.S. executives to justify increased AI capital expenditures, leading to a potential slowdown in electricity demand growth.

Market Reactions

The Finance Avenue notes that doubts surrounding the impact of DeepSeek’s AI model have unsettled investors in utilities stocks like Vistra and Constellation Energy. These companies, which have seen significant valuation growth due to the AI boom, now face uncertainties about their future prospects in light of emerging technologies and market shifts.