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This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
$600 billion plunge in Nvidia
Nvidia shares plunged nearly 17% on Monday, its worst day since March 2020, on concerns raised by China’s DeepSeek artificial intelligence model. The chipmaker lost close to $600 billion in market cap, the biggest drop for any company on a single day in U.S. history. Other stocks related to AI, such as Micron, Arm Holdings and Broadcom in the U.S., as well as ASML and Tokyo Electron in global markets, also fell sharply.
DeepSeek raises questions on AI investments
Chinese AI startup DeepSeek on Monday released its reasoning model R1, which rivals OpenAI’s o1. Its main claim to fame is that the model was built with chips less powerful than those U.S. AI firms use and could have cost less than 10% of Meta’s Llama, according to estimates by Jefferies analysts. That fanned fears that the huge investments into AI by U.S. firms are unwarranted and a bubble waiting to pop.
Energy shares fizzle out
Power companies most exposed to the tech sector’s data center boom plunged Monday, as DeepSeek’s claims led investors to question how much energy artificial intelligence applications will actually consume. Vistra closed nearly 30% lower while Talen Energy and GE Vernova tumbled more than 20%. All three stocks gave up this year’s gains.
Tech shares battered
Major U.S. benchmarks fell Monday on a broad retreat by semiconductor and AI-related stocks, though the Dow Jones Industrial Average managed to advance. The pan-European Stoxx 600 index ticked down 0.07%, recovering from steep losses earlier. But stocks with ties AI, such as Siemens Energy and Schneider Electric, ended the day sharply lower.
[PRO] Nvidia sell-off an ‘overreaction’: Tom Lee
Nvidia’s slump is “an overreaction” at a scale close to the 2020 pandemic-sparked sell-off, Tom Lee, head of research at Fundstrat Global Advisors, told CNBC. Here’s why Lee isn’t changing his mind on Nvidia for now.
The bottom line
The Nvidia rout, triggered by DeepSeek-induced worries that AI models don’t actually need billions of dollars’ worth of expensive chips, is deep and scary. There’s no other way of putting it.
Prior to Monday, the chipmaker was the most valuable publicly traded company. After the sell-off, which wiped close to $600 billion in Nvidia’s market capitalization, the company dropped to third place, behind Apple and Microsoft.
To put that tectonic shift into context, Nvidia’s plummet in market cap is larger than the entire market value of Netflix and double that of Wells Fargo, noted CNBC’s Adrian van Hauwermeiren.
And it matters for investors because Nvidia, in all likelihood, holds a place in their portfolios, considering how much the stock market has relied on the chipmaker for its gains the past two years. Even if investors, for some reason, are not exposed to Nvidia, its shares are among the top 15 holdings of 469 exchange traded funds, according to VettaFi, added van Hauwermeiren.
Nvidia aside, other AI-adjacent plays fell steeply, causing the tech-heavy Nasdaq Composite to slide 3.07%. The S&P 500 lost 1.46%. However, the Dow Jones Industrial Average, which climbed 0.65%, was somewhat shielded from the Monday bloodbath by gains in Apple, Johnson & Johnson and Travelers.
“It’s a good example of selling first and asking questions later, and investors sort of feeling that valuations are a bit stretched for technology in general and for semiconductors in particular,” said Sam Stovall, chief investment strategist at CFRA Research.
“We’re going to have volatility, especially when we’re dealing with a richly valued market and exogenous events,” Stovall added.
Indeed, the CBOE VIX index — which measures the strength of 30-day price changes of the S&P and is hence seen as Wall Street’s fear gauge — jumped by 20.5% on Monday, though it managed to dip from the 45% increase earlier in the day.
That said, there were still pockets in the market where stocks rose, suggesting that “investors are not bailing out of stocks necessarily, but are rotating into the defensive areas,” as Stovall put it.
Some tech stocks even rose despite the pall cast over the sector by DeepSeek. Shares of Salesforce, Adobe and Palo Alto Networks rose on the prospect that AI costs could go down and expand their margins, according to John Belton, portfolio manager at Gabelli Funds.
In other words, DeepSeek isn’t proving that AI is a fantastical hole into which investors and companies have been pouring money. On the contrary, it suggests that AI is more accessible and affordable than thought — if DeepSeek’s claims about its low costs are proven true, investors have to get used to a different way of playing AI.
— CNBC’s Lisa Kailai Han, Fred Imbert, Pia Singh, Jesse Pound, Michelle Fox, Nicholas Wells, Adrian van Hauwermeiren, Scott Schnipper contributed to this report.