American stocks crashed on Monday as focus shifted to the upcoming Federal Reserve interest rate decision and as concerns about DeepSeek’s success.
Futures tied to the Dow Jones index fell by over 1%, while the S&P 500 and the Nasdaq 100 indices fell by over 3%.
DeepSeek sends jitters in equities
The main catalyst for this crash is the recent launch of DeepSeek, a Chinese AI application that has disrupted the industry as we know it. The app was developed in a few months and cost just a few millions.
DeepSeek’s success is a big blow to other companies in the United States that have spent billions of dollars training their AI models. It means that firms can use cheaper chips and achieve a similar result. As such, NVIDIA, AMD, and ASML stocks have plunged by over 8%.
Therefore, there are concerns about its impact on big tech companies that have spent billions of dollars building their models. Just last week, companies like Oracle, OpenAI, and Softbank announced a plan to invest $500 billion in US data centers. In a statement to Bloomberg, the Chief Investment Officer at Saxo Markets said:
“The emergence of China’s DeepSeek indicates that competition is intensifying, and although it may not pose a significant threat now, future competitors will evolve faster and challenge the established companies more quickly. Earnings this week will be a huge test.”
Big tech earnings and Fed decision ahead
Many big tech companies in the Nasdaq 100 and S&P 500 indices will publish their financial results. Microsoft and Meta Platforms that have invested billions in the AI industry will release their numbers on Wednesday.
Apple and Amazon will report their numbers on Thursday and Friday. Microsoft has invested billions in OpenAI, while Amazon is a big shareholder in Anthropic, the parent company of Claude AI.
A key concern for the AI industry is that the industry is not advancing as most analysts were expecting. OpenAI is estimated to have lost over $5 billion in 2024 and that its cumulative loss through 2025 will be at least $44 billion.
Many other American companies have received substantial valuations. Elon Musk’s xAI has a valuation of over $50 billion, while Anthropic is valued at over $60 billion.
The same has happened in public markets, where NVIDIA has achieved a market cap of over $3.4 trillion. Therefore, DeepSeek’s success may lead to a change of tune in how investors value these companies.
The other key catalyst for the Nasdaq 100 and S&P 500 index crash is the upcoming Fed decision. Economists expect the bank to maintain a hawkish tone because of the elevated inflation, which has remained above 2%. A more hawkish tone will likely push these indices lower.
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