Posted on 01/27/2025 7:06:30 AM PST by Red Badger
Stocks were down sharply on Monday on concern about an artificial intelligence stock bubble popping because of the emergence of Chinese startup DeepSeek that possibly made a competitive AI model for a fraction of the cost.
The Dow Jones Industrial Average dropped 122 points, or 0.3%. The Nasdaq Composite shed 2.7%, and the S&P 500 slid 1.6%.
Last week, DeepSeek released an open source AI model that reportedly outperformed OpenAI’s in several tests. The company had launched an open source large-language model in December for what it says was less than $6 million. While Wall Street questions that figure, the foreign startup is still raising concern that the billions being spent to build out big AI models could be done for much more cheaply.
“Why are investors concerned? The news over the past few months has been about the huge capex announcements of Microsoft, which is spending $80bn in ’25, while Meta recently announced investments between $6bn and $65bn,” wrote JPMorgan analyst Sandeep Deshpande. “Thus, with these considerable sums flowing into AI investments in the US, that Deepseek’s highly efficient and lower resource-intensive AI model has shown such significant innovation and success is posing thoughts to investors that the AI investment cycle may be over-hyped and a more efficient future is possible.”
AI darling Nvidia dropped 11%, Broadcom lost 12%, and AMD shed 4%. Microsoft lost 4%. Palantir was also hit for 4%. Other megacap tech names Amazon and Meta Platforms respectively shed 2.4% and 1.4%, respectively.
Derivative plays from the AI buildout like power providers were also hit big. Constellation Energy lost 17%, while Vistra dropped 20%.
Monday’s sharp declines come as traders brace for a major week, with “Magnificent Seven” members Meta, Microsoft, Tesla and Apple all due to report their latest quarterly results.
On top of that, the Federal Reserve will hold its first policy meeting of the year, deciding on the level of interest rates on Wednesday. Fed funds futures are pricing in a more than 99% chance that the central bank leaves interest rates unchanged, according to CMEGroup’s FedWatch Tool.
All three major U.S. indexes recorded their second-straight positive week last week, reassuring investors that the bull market remains intact even after December’s dip. The S&P 500 hit a new intraday record on Friday after notching a fresh all-time closing high in the previous session.
6 Min Ago VIX ‘fear index’ leaps 45% Monday morning as risk-off trades grip stocks The CBOE Market Volatility Index, known on Wall Street as the VIX, soared more than 45% early Monday to 21.56 — up from just 14.85 on Friday, according to FactSet data. The VIX briefly rose as high as 22.51 on Monday.
The VIX is a measure of how much investors expect the S&P 500 will move over the next 30 days, and is often considered a byword for how much fear there is in the stock market and where current sentiment stands.
The 52-week high of 38.57in the VIX came during last August’s risk-off unwinding of Japanese yen carry trades when the Bank of Japan raised rates, the dollar weakened and it briefly looked as though U.S. unemployment was picking up.
— Scott Schnipper
Why was this “news” not reflected in market prices on Friday?
dumb thing about his is that Deepseek has 50k NVDA H100s. So they aren’t doing AI on the cheap, it’s not a low cost break though.
https://x.com/Banana3Stocks/status/1883784700566949986
https://x.com/TheTranscript_/status/1883097008900358262
They won’t say much when the market soon recovers most of the loss.
It took the entire weekend for investors to digest the news..............
“If it bleeds, it leads.” the old Dead Tree Media Axiom................
This really looks like market manipulation. It will be interesting to see who in DC gets richer from this. Somebody needs to some analysis on Nancy’s puts and orders of several of these tech stock.
How true. Hype sells.
China stealing more tech?
Going to but NVDIA on the dip. They will bounce back.
Best stock tip I ever saw was, “Follow Nancy Pelosi” and you will make money...PERIOD.
There is a literally mutual fund you can get into that follows her and her husbands buys and sells.
I love the wall of worry.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.