U.S. stocks closed sharply lower Monday, with the Nasdaq suffering its biggest decline of the year and Nvidia shares falling the most since 2020, as markets recalibrated valuations in the chip and tech sector following the weekend launch of China-based DeepSeek's AI assistant
The S&P 500 ended 89 points, or 1.46% lower on the day while the Nasdaq slumped 612 points, or 3.07%. The Dow managed to rise 289 points thanks in part to big gains for defensive stocks such as Johnson & Johnson (JNJ) , Travelers (TRV) and Coca-Cola (KO) .
S&P 500 Closing Bell Heatmap (Jan 27, 2025)$SPY -1.46% 🟥$QQQ -3.07% 🟥$DJI +0.65% 🟩$IWM -1.03% 🟥 https://t.co/8QMS7Xco9x pic.twitter.com/sZtiwVFyRE
— Wall St Engine (@wallstengine) January 27, 2025
Updated at 2:54 PM EST
Chip wreck
The Philadelphia Semiconductor Index, the market's tech and chip sector benchmark, is on pace for its worst day in nearly five years heading into the final hours of trading, falling 10.2% to the lowest level since early September.
Nvidia remains deeply in the red, and likely to shed around $620 billion in market value, with Microsoft and Meta Platforms, both of which report December quarter earnings on Wednesday, down 2.5% and 0.2% respectively amid the broader market recalibration for AI-focused tech stocks.
Other socks suffering heavy declines include Broadcom (AVGO) , which tumbled 18.4% to $199.60 each, and Advanced Micro Devices (AMD) , which slumped 7.9% to $113.14 each.
"We think investors should take the innovation from China seriously, as it puts into question whether the current pace of capex spend/technology upgrades is necessary," said CFRA analyst Angelo Zino.
"Commentary from U.S. hyperscalers will be key this week to see if they remain aggressive with AI spend (access to GPUs a competitive advantage), but we think that they will likely stress the need for greater compute as we shift toward Agentic AI and Physical AI," he added.
Related: DeepSeek rattles tech stocks ahead of Microsoft, Meta earnings
Updated at 11:45 AM EST
Buyers' strike?
Treasury bond yields edged higher following a solid auction of $69 billion in new 2-year notes that drew a much smaller-than-expected amount of interest from foreign buyers.
So-called indirect bidders, which largely represent foreign central bank purchasers, took down around 65% of the overall sale, down sharply from the six-auction average of 70.9%.
Overall, investors placed bids worth around $184 billion, generating a bid-to-cover ratio, a proxy for demand, of 2.66. That's down slightly from the six-auction average of 2.68 and the 2.73 bid-to-cover ratio recorded in December.
Related: Inflation, debt limits reset bond market risks
Updated at 11:12 AM EST
Nvidia slump
Nvidia shares have wiped-out all of their gains for the year this morning as analysts and investors react to the impact of DeepSeek on the broader AI investment story.
"Certainly markets are responding to concerns over open source code startup DeepSeek, funded by a Chinese hedge fund manager," said Bob Lang, at Aztec Capital. "The threat seems to be real towards Nvidia and other companies that support production, but we still have not heard from the main players (most are in their quiet period and won’t comment on something unless it is material)."
Nvidia shares were marked 14.8% lower in late-morning trading to change hands at $120.98 each,
Related: Top analyst revisits Nvidia stock price target amid DeepSeek threat
Updated at 9:33 AM EST
Soft open
The S&P 500 was marked 117 points, or 1.92% lower in the opening minutes of trading, with the Nasdaq falling 685 points, or 3.44% to wipe out all of its gains for the year.
The Dow Jones Industrial Average slumped 280 points while the mid-cap Russell 2000 fell 23 points, or 1%.
S&P 500 Opening Bell Heatmap (Jan 27, 2025)$SPY -2.18% 🟥$QQQ -3.59% 🟥$DJI -0.76% 🟥$IWM -0.86% 🟥 pic.twitter.com/flzIdbtXgC
— Wall St Engine (@wallstengine) January 27, 2025
Updated at 7:29 AM EST
Volatility spike
The CBOE Group's VIX index, often referred to as Wall Street's fear gauge, surged to the highest levels in more than a month amid the roiling premarket volatility in tech stocks tied to the launch of China-based AI chatbot DeepSeek.
The VIX index was last marked 43.6% higher in after-hours trading at $21.56, a level that suggests traders are expecting daily moves for the S&P 500 of of 1.35%, or 82 points, each day for the next 30 days.
$VIX near 21 pic.twitter.com/MLz5hS9uEz
— Mike Zaccardi, CFA, CMT 🍖 (@MikeZaccardi) January 27, 2025
Stock Market Today
DeepSeek, a China-based startup that has reportedly used Nvidia's (NVDA) lower-end H800 chips to build an AI training model for less than $6 million, overtook OpenAI's ChatGPT chatbot as the world's most-downloaded AI tool on the Apple (AAPL) App Store this weekend.
The Hangzhou-based group claims its free-to-use, open-sourced chatbot can outperform U.S. rivals at a small fraction of the cost. If that statement is correct, the chatbot could cast enormous doubt on the business models of tech giants such as Microsoft (MSFT) , Meta Platforms (META) , Amazon (AMZN) and Google parent Alphabet (GOOGL) , which collectively have committed around $300 billion in capital spending this year alone.
Nvidia shares were marked 13.8% lower in premarket trading following the DeepSeek reveal, with Microsoft falling 6.8% and Meta falling 4.6%.
"The investment case for the AI supply chain until now was that more spending led to better outcomes for AI models. Big tech firms Microsoft, Google, Amazon and Meta have deployed hundreds of billions to purchase GPUs from Nvidia and ensure chip supply to satisfy the insatiable demand for AI," said Javier Correonero, equity analyst at Morningstar. "Deepseek is challenging that hypothesis."
The moves come at bad time for the broader market as well, which will navigate a busy week, with 103 S&P 500 reporting December-quarter earnings and the first Federal Reserve rate meeting of the year.
Markets are also nervously assessing the impact of President Donald Trump's decisions to slap a 25% tariff on goods imported from Colombia after that country's president refused to accept a flight filled with people recently deported under Trump's new immigration crackdown.
Related: Analyst revisits Meta stock price target as Zuckerberg drops bombshell
Colombia eventually agreed to accept the flights, with Trump saying the tariffs were now "placed in reserve. But Trump's willingness to wield such a blunt instrument in bilateral negotiations will raise the specter of further, and unpredictable, uses of the threat in the future.
Bond markets reflected both that caution and the larger implications of the tech-stock collapse, with benchmark 10-year note yields falling 10 basis points to a Jan. 2 low of 4.521%.
"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, managing director for trading and investing at E*Trade from Morgan Stanley.
"That could make this week’s megacap tech earnings even more critical to market sentiment. And while no one expects a rate cut rate on Wednesday, everyone will be looking for some signs of longer-term dovishness from the Fed," he added. "But don’t forget surprises out of Washington. The Colombia tariff spat may increase concerns that the Trump administration will be more aggressive on this front than previously thought."
On Wall Street, the major tech selloff has futures contracts tied to the Nasdaq, which is up 3.33% for the year, looking at an opening bell decline of more than 1,000 points in heavy premarket volume.
The S&P 500, which rose 1.74% last week, is called 135 points lower with the Dow Jones Industrial Average braced for a 370-point decline.
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In overseas markets, Europe's Stoxx 600 was marked 0.63% lower in early Frankfurt trading, with chip-design group ASML (ASML) leading the broader declines with a 10.5% slump. Britain's FTSE 100 fell 0.22% in London.
Overnight in Asia, Japan's Nikkei 225 slumped 0.92% in Tokyo with the regional MSCI ex-Japan benchmark falling 0.29% into the close of trading.
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