Major United States benchmark averages started the week in a volatile fashion after Chinese startup DeepSeek claimed to have developed a competitive artificial intelligence (AI) model at a fraction of the cost of Silicon Valley’s billion-dollar investments.
During Monday's regular trade, the Dow Jones Industrial Average added 289.3 points or 0.7% to 44,713.6, the S&P 500 fell 89 points or 1.5% to 6,012.3, and the Nasdaq Composite plunged 612.5 points or 3.1% to 19,341.8.
DeepSeek’s recently launched R1 model, an open-source reasoning tool, reportedly outperformed OpenAI’s systems in multiple tests. The startup claimed to have developed its large language model for under US$6 million (A$9.5 million), sparking doubts on Wall Street but raising fears that significant advancements in AI could be achieved with far less investment than previously anticipated.
AI stalwarts bore the brunt of the sell-off. Nvidia tumbled 17%, Microsoft fell 2.1%, Alphabet shed 4.2% and Broadcom tanked 17.4%.
Companies reliant on AI buildouts also faced steep losses, with Constellation Energy falling 20.9% and Vistra plunging 28.3%.
Meanwhile, traders are bracing for a pivotal week, with major tech firms including Meta, Microsoft, Tesla, and Apple set to report quarterly earnings.
Adding to the uncertainty, the Federal Reserve will convene its first policy meeting of the year on Wednesday, with markets overwhelmingly expecting the central bank to leave interest rates unchanged, according to the CME FedWatch Tool.
On the bond markets, 10-year and 2-year yields fell 1.9% and 1.6% to 4.530% and 4.197%, respectively.
