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Wall Street's 'fear gauge' touches highest since Dec. 20

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

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Indexes: Dow up 0.5%, S&P 500 down 1.9%, Nasdaq down 3.7%

(Updates to afternoon)

By Caroline Valetkevitch

NEW YORK, Jan 27 (Reuters) - The S&P 500 and the Nasdaq

fell sharply on Monday, led by Nvidia ( NVDA ) and other chipmakers as

popularity of a low-cost Chinese artificial intelligence model

raised investor worries about the outlooks for current AI

leaders in the United States.

Nvidia's ( NVDA ) shares were down 17%, while an index of

semiconductor stocks slid 10% and was on track for its

biggest single-day percentage fall since March 2020.

Nvidia ( NVDA ) was on track to lose roughly $600 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.

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 on Monday overtook rival ChatGPT to

become the top-rated free application available on Apple's App

Store in the United States.

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 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

The Dow Jones Industrial Average rose 207.26 points,

or 0.47%, to 44,634.55, the S&P 500 lost 114.54 points,

or 1.86%, to 5,987.77 and the Nasdaq Composite lost

732.61 points, or 3.67%, to 19,222.53.

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

was down 2.5% and Google-parent Alphabet was down 4%,

while AI server maker Dell Technologies ( DELL ) was down 11.7%.

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

sliding 10.6%.

The Cboe Volatility Index, known as Wall Street's

"fear gauge", hit its highest since Dec. 20 and was last up at

18.29.

Earnings from some big technology companies are due this

week, including from Microsoft ( MSFT ).

Financial markets 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.

Investors also 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.

Declining issues outnumbered advancers by a 1.01-to-1 ratio

on the NYSE.

On the Nasdaq, 1,676 stocks rose and 2,727 fell as declining

issues outnumbered advancers by a 1.63-to-1 ratio.

(Additional reporting by Shashwat Chauhan and Sukriti Gupta in

Bengaluru; Editing by Shounak Dasgupta, Devika Syamnath and

Aurora Ellis)