On January 27, 2025, Wall Street faced a significant downturn as the S&P 500 dropped 1.9%, marking its worst day in over a month. This decline was largely attributed to the emergence of a new AI competitor from China, DeepSeek, whose generative AI model reportedly operates at a fraction of the cost of U.S. counterparts.
DeepSeek's app topped Apple's App Store, causing major losses among tech stocks. Nvidia fell 17.6% to $119.41, wiping out $537 billion from its market cap, which was previously around $2.9 trillion. Other tech giants like Microsoft and Alphabet also experienced declines of 3.6% and 2.7%, respectively. The Dow Jones Industrial Average, by contrast, remained relatively stable, down just 58 points, or 0.1%.
Analysts expressed skepticism about the sustainability of DeepSeek's claims, given U.S. export restrictions on AI chips. However, the disruption sent investors rushing towards bonds, pushing the yield on the 10-year Treasury down to 4.54%.
The broader implications of this selloff highlight the fragility of the current market, which has seen record highs driven by AI investments. The so-called 'Magnificent Seven' tech companies, which include Nvidia, Apple, and Microsoft, accounted for over half of the S&P 500's total return last year, raising concerns about concentration risk.
As major tech firms prepare to report their fourth-quarter earnings this week, the market will be keenly watching for any signs of recovery or further decline in response to the evolving competitive landscape.