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Wall Street's 'fear gauge' jumps

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Nvidia ( NVDA ) falls after China's DeepSeek sparks AI market rout

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Indexes: Dow up 0.7%; S&P 500 down 1.5%; Nasdaq down 3.1%

By Caroline Valetkevitch

NEW YORK, Jan 27 (Reuters) - Nasdaq posted its biggest

one-day percentage drop since Dec. 18 on Monday as a low-cost

Chinese artificial intelligence model prompted a steep selloff

in U.S. chipmakers.

AI leader Nvidia ( NVDA ) sank 17%, and it erased about $593

billion in stock market value, the deepest ever one-day loss for

a company on Wall Street, according to LSEG data. It was more

than double the previous one-day record loss, set by Nvidia ( NVDA ) last

September.

An index of semiconductor stocks dropped 9.2% in its

biggest single-day percentage fall since March 2020.

Chinese startup DeepSeek has rolled out a free assistant it

says uses cheaper chips and less data, raising questions about

investor expectations that AI will drive demand along a supply

chain from chipmakers to data centers.

DeepSeek's AI Assistant by Monday had overtaken U.S. rival

ChatGPT in downloads from Apple's ( AAPL ) App Store.

Kim Forrest, chief investment officer at Bokeh Capital

Partners in Pittsburgh, said there are still many questions

about the DeepSeek model and its impact.

"Today is a drubbing for these (AI leader) stocks, but I

don't necessarily think whatever's going to happen in the short

while here - the next couple of days - is where they are

ultimately valued," she said.

Optimism over AI and gains in Nvidia ( NVDA ) and other big

technology-related shares helped to drive the stock market's

sharp gains in 2024.

The Dow Jones Industrial Average rose 289.33 points,

or 0.65%, to 44,713.58, the S&P 500 lost 88.96 points, or

1.46%, to 6,012.28 and the Nasdaq Composite lost 612.47

points, or 3.07%, to 19,341.83.

The S&P 500 registered its biggest one-day percentage fall

since Jan. 10. The Cboe Volatility Index, known as Wall

Street's "fear gauge", rose.

Among other big tech-related companies, Microsoft ( MSFT )

shares fell 2.1% and Google-parent Alphabet dropped

4.2%, while AI server maker Dell Technologies ( DELL ) declined

8.7%.

Data center operators also tanked, including Digital Realty ( DLR )

, which fell 8.7%.

Power companies, which are expected to see higher demand

from energy-intensive data centers needed to develop AI

technology, also fell. Vistra ( VST ) dropped 28.3%.

Tech stocks are likely to stay in focus this week, with some

big technology names, including Microsoft ( MSFT ), due to post-quarterly

results.

Investors are keen to hear from the Federal Reserve,

which is widely expected to hold its lending rate steady in its

first interest-rate decision of the year due on Wednesday.

Market watchers also were digesting news that the U.S. and

Colombia pulled back from the brink of a trade war on Sunday

after the White House said the South American nation had agreed

to accept military aircraft carrying deported migrants.

Volume on U.S. exchanges was 17.39 billion shares, compared

with the 14.90 billion average for the full session over the

last 20 trading days.

Advancing issues outnumbered decliners by a 1.1-to-1 ratio

on the NYSE. There were 109 new highs and 56 new lows on the

NYSE.

On the Nasdaq, 1,839 stocks rose and 2,641 fell as declining

issues outnumbered advancers by a 1.44-to-1 ratio.

(Additional reporting by Shashwat Chauhan and Sukriti Gupta in

Bengaluru; Editing by Shounak Dasgupta, Devika Syamnath and

Aurora Ellis)