Stock futures were down sharply on Monday on concern about an artificial intelligence stock bubble popping because of the emergence of Chinese startup DeepSeek that possibly made a competitive AI model for a fraction of the cost. Futures tied to the Dow Jones Industrial Average dropped 311 points, or 0.7%, while S&P futures shed 2%. Nasdaq 100 futures slid 3.5% amid a big decline in technology shares. Last week, DeepSeek released an open source AI model that reportedly outperformed OpenAI’s in several tests. The company had launched an open source large-language model in December for what it says was less than $6 million. While Wall Street questions that figure, the foreign startup is still raising concern that the billions being spent to build out big AI models could be done for much more cheaply. “Why are investors concerned? The news over the past few months has been about the huge capex announcements of Microsoft, which is spending $80bn in ’25, while Meta recently announced investments between $6bn and $65bn,” wrote JPMorgan analyst Sandeep Deshpande. “Thus, with these considerable sums flowing into AI investments in the US, that Deepseek’s highly efficient and lower resource-intensive AI model has shown such significant innovation and success is posing thoughts to investors that the AI investment cycle may be over-hyped and a more efficient future is possible.” AI darling Nvidia dropped 12% in the premarket, Broadcom lost 12% and AMD shed 4%. Microsoft lost 6%. Palantir was also hit for 6%. Other megacap tech names Amazon and Meta Platforms respectively shed 4% and 3%. Derivative plays from the AI buildout like power providers were also hit big. Constellation Energy lost 11%, as did Vistra. Monday’s sharp declines come as traders brace for a major week, with “Magnificent Seven” members Meta, Microsoft, Tesla and Apple all due to report their latest quarterly results. On top of that, the Federal Reserve will hold its first policy meeting of the year, deciding on the level of interest rates on Wednesday. Fed funds futures are pricing in a more than 99% chance that the central bank leaves interest rates unchanged, according to CMEGroup’s FedWatch Tool. All three major U.S. indexes recorded their second-straight positive week last week, reassuring investors that the bull market remains intact even after December’s dip. The S&P 500 hit a new intraday record on Friday after notching a fresh all-time closing high in the previous session. U.S. Treasury yields fell on Monday as investors sought out safe-haven assets amid a massive stock market sell-off. The 10-year Treasury yield slipped eight basis points to 4.54%, while the 2-year Treasury yield was last trading at 4.208% after falling more than six basis points. Asia-Pacific markets traded mostly higher Monday, as investors assessed China’s manufacturing and industrial profit data. Japan’s Nikkei 225 fell 0.92% to close at 39,565.8 while the Topix added 0.26% to end at 2,758.07. Shares of Japan’s chip-related companies dropped as Chinese AI startup DeepSeek’s free open-source large-language model threatens U.S. AI dominance. Advantest declined 8.6%. Tokyo Electron dropped 4.9%, while Renesas Electronics fell 1.24%. Softbank Group, which owns chip designer Arm, slid 8.3%. Hong Kong’s Hang Seng index rose 0.51% in its last hour of trade, while the mainland CSI 300 dipped 0.41% to close at 3,817.08. China’s factory activity growth in January unexpectedly contracted, with the official purchasing managers’ index for January coming in at 49.1 versus Reuters’ estimates of 50.1. In December, China’s industrial profits jumped 11% from a year earlier, however, on a annual basis profits declined for a third straight year. Australian, Taiwan and South Korean markets were closed for holidays. Oil prices fell more than 1% on Monday after U.S. President Trump called on OPEC to reduce prices following the announcement of wide-ranging measures to boost U.S. oil and gas output in his first week in office. Brent crude futures dropped 87 cents, or 1.11%, to $77.63 a barrel by 0043 GMT after settling up 21 cents on Friday. U.S. West Texas Intermediate crude was at $73.77 a barrel, down 89 cents, or 1.19%. Trump on Friday reiterated his call for the Organization of the Petroleum Exporting Countries to cut oil prices to hurt oil-rich Russia’s finances and help bring an end to the war in Ukraine. Gold prices pared earlier losses on Monday as the U.S. dollar edged down, while investors turned their attention to the Federal Reserve’s first policy meeting this year for clues about the future path of interest rates. Spot gold was down 0.1% at $2,766.59 per ounce, after falling as much as 0.7% earlier in the session. Prices had risen to near-record high levels on Friday. U.S. gold futures fell 0.3% to $2,771.40 per ounce. The dollar was down 0.2%, erasing earlier gains and making gold, which is priced in dollars, less expensive for other currency holders.
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