Wall Street’s superstars tumbled on January 27 as a competitor from China threatened to upend the artificial intelligence frenzy they have been feasting on.
The S&P 500 dropped 1.5%, dragged down in large part by a 16.9% fall for Nvidia. Other Big Tech stocks also took heavy losses, and they pulled the Nasdaq composite down 3.1% for its worst loss in more than a month.
The damage was focused on AI-related stocks, while the rest of the market held up much better. The Dow Jones Industrial Average rose 289 points, or 0.7%, and the majority of U.S. stocks climbed.
But anyone holding an S&P 500 index fund, which are found in many 401(k) accounts, felt the pain because of how influential those tech giants have become on indexes. The shock to financial markets came from China, where a company called DeepSeek unveiled a large language model that can compete with U.S. giants but at potentially a fraction of the cost.
DeepSeek had already hit the top of the chart for free apps on Apple’s App Store by January 27, and analysts said such a feat would be particularly impressive given how the U.S. government has restricted Chinese access to top AI chips.
Skepticism, though, remains about how much DeepSeek’s announcement will ultimately shake the economy that is built around the AI industry, from the chip makers making semiconductors to the utilities hoping to electrify vast data centers gobbling up computing power.
“It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used as there will be many skeptics around this issue given the information is coming from China,” according to Dan Ives, an analyst with Wedbush Securities.
DeepSeek’s disruption nevertheless rocked AI-related stocks worldwide. In Tokyo, Japan’s Softbank Group Corp. lost 8.3% to pull closer to where it was before leaping on an announcement trumpeted by the White House that it was joining a partnership to invest up to $500 billion in AI infrastructure.
And on Wall Street, Constellation Energy lost more than a fifth of its value, 20.8%. The company has said it would restart the shuttered Three Mile Island nuclear power plant to supply power for data centers for Microsoft. All the worries sent investors toward bonds, which can be safer investments than any stock. The rush pushed the yield of the 10-year Treasury down to 4.52% from 4.62% on January 24.
It is a sharp turnaround for the AI winners, which had soared in recent years on hopes that all the investment pouring in would remake the global economy and deliver gargantuan profits along the way. Such stellar performances also raised criticism that their stock prices had gone too far, too fast.
Before the January 27 drop, which was its worst since the 2020 COVID crash, Nvidia’s stock had soared from less than $20 to more than $140 in less than two years, for example.
It was just on January 24 that Meta Platforms CEO Mark Zuckerberg was saying he expects his company to invest up to $65 billion this year and grow its AI teams significantly, while talking up a data center in Louisiana that will be so large it could cover a significant part of Manhattan.
A small group of seven such companies has become so dominant that they alone accounted for more than half the S&P 500’s total return last year, according to S&P Dow Jones Indices. They include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Their immense sizes give them huge sway over the S&P 500 and other indexes that give more weight to bigger companies. That is why many 401(k) holders felt the pain of Nvidia’s drop, even if they did not know they owned any Nvidia, so long as they owned a fund that tracks the S&P 500.
All told, the S&P 500 fell 88.96 points to 6,012.28. The Nasdaq composite dropped 612.47 to 19,341.83, and the Dow Jones Industrial Average rose 289.33 to 44,713.58.
Brian Jacobsen, chief economist at Annex Wealth Management, suggested not overreacting to such sharp swings.
“It is possible that the news out of China could be overstated and then we could see a reversal of the recent market moves,” Jacobsen said. “It is also possible that the news is true, but then that would present new investment opportunities.”
The pressure is on companies to keep delivering strong profits, particularly after a recent jump in Treasury yields. When bonds are paying more in interest, they put downward pressure on stock prices. Yields have been on the rise amid a solid U.S. economy and worries about possibly higher inflation coming from tariffs and other policies favored by President Donald Trump.
BY THE NUMBERS
5.6%
The January 27 decline in the S&P 500 tech sector, the biggest drop in the index since September 2020. Nvidia was one of eight stocks in the tech sector to post double-digit losses on the day. The decline for the index would have been worse if not for a gain of more than 3% in shares of Apple.
$590 billion
The approximate decline in Nvidia’s market value. That decline is more than the combined market value of home improvement giants Home Depot and Lowe’s. Nvidia still carries a market value of about $2.9 trillion.
$27.6 billion
The drop in Oracle CEO Larry Ellison’s net worth after the selloff, according to Forbes Real-Time Billionaires list. Ellison’s net worth jumped last week after President Donald Trump said a new partnership formed by OpenAI, Oracle and SoftBank would spend up to $500 billion for infrastructure tied to AI. Forbes says Ellison is still worth $200 billion. Jensen Huang, CEO of Nvidia, saw his net worth drop $20.8 billion to $103.6 billion.
28.3%
The decline in Vistra Corp., the biggest drop for any stock in the S&P 500. Vistra is not a tech company — it is an independent power producer. Its shares soared last year on expectations that the build out of AI infrastructure in the U.S. will require enormous amounts of power.
351
The number of stocks in the S&P 500 that actually rose on January 27. That the index dropped sharply on a day when better than three-fifths of its component stocks rose demonstrates the outsized influence of tech stocks such as Nvidia. The Dow Jones Industrial Average, which has much less of an emphasis on tech than the S&P 500 and Nasdaq, closed with a modest gain.
