DeepSeek Shakes Wall Street, Nvidia Bears The Brunt With Nearly $600 Billion In Loses

The ascent of DeepSeek-R1, the latest AI model from the Chinese startup DeepSeek, to the top of Apple's App Store contributed to a turbulent start for Wall Street and global markets this week.

From New York to London and Tokyo, equities tumbled, with the decline in US markets coming after a surge to record highs. The S&P 500 fell by 1.5%, while the Nasdaq 100 dropped 3%.

Photo Credit: AP/PTI

US tech giant Nvidia, meanwhile, saw its value plummet by 17%, wiping out $589 billion-the largest loss in market history.

Energy companies, anticipated to benefit from unprecedented demand for AI, also suffered, led by a 21% drop for Constellation Energy Corp.

"What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space. That could make this week's megacap tech earnings even more critical to market sentiment," Chris Larkin from Morgan Stanley told Bloomberg.

Tech behemoths Microsoft and Apple are set to announce their earnings this week, which could help restore confidence in the so-called 'Magnificent Seven' group of companies (Alphabet, Apple, Amazon, Microsoft, Meta, Nvidia, and Tesla).

A measure of the 'Magnificent Seven' megacap stocks slid by 2.7%, while the Philadelphia Stock Exchange Semiconductor Index and the Russell 2000 declined by 9.15% and 1%, respectively.

Steve Sosnick of Interactive Brokers attributed the 'sudden adverse market reaction' to a 'wave of complacency' in the equities market.

"The sudden, adverse market reaction to DeepSeek indicates that some of the key assumptions that have been driving the AI trade, and hence major indices, are getting reassessed today," Sosnick commented.

A 'Sputnik moment' for stocks?

Paul Nolte of Murphy & Sylvest Wealth Management was uncertain if this represented a 'Sputnik moment' for stocks.

"But this is certainly a wake-up call that we are not the only game in town. To put these very high valuations in the stocks thinking they have cornered the market is a huge mistake and that is being re-rated," Nolte remarked.

The term 'Sputnik moment' refers to the 'Sputnik crisis,' a period of public anxiety in Western nations over a perceived technological gap between the US and the Soviet Union, triggered by the Soviet Union's launch of Sputnik-I, the world's first artificial satellite.