Wall Street Today: US stocks dropped sharply on Monday, led by technology shares, as surging interest in Chinese startup DeepSeek’s low-cost artificial intelligence model raised doubts over the sector’s lofty valuations. 

The Dow Jones Industrial Average fell 0.27 per cent, to 44,305, the S&P 500 lost 1.72% to 5,996 and the Nasdaq Composite fell around 3% to 19,342. Nvidia , whose chips are the top choice for powering AI applications, dropped nearly 12% in early trading, while industry peers Broadcom and Marvell Technology fell more than 10% each.

The CBOE Volatility Index, known as Wall Street’s “fear gauge”, hit its highest level since Dec. 20, surging 33% on the day.

What’s driving Wall Street down today?

Here are five key factors that weighs on the US stock market sentiment:

1.China’s AI powerhouse DeepSeek rattles Silicon Valley

DeepSeek, which overtook rival ChatGPT to become the top-rated free application on Apple’s App Store in the U.S., says it uses lower-cost chips and less data, challenging a widespread bet in markets that AI will drive demand along a supply chain from chipmakers to data centers.

DeepSeek’s app had already hit the top of Apple’s App Store chart by early Monday morning, and analysts said such a feat would be particularly impressive given how the U.S. government has restricted Chinese access to top AI chips.

Investors are digesting the implications of DeepSeek’s breakthrough products offering comparable performance at seemingly a fraction of the cost — and what this means for US tech behemoths that have funneled billions of dollars into cutting-edge AI processors.

Over the past 24 months, most of the Nasdaq 100 Index’s gains have come from a handful of AI names, inflating valuations in the process. Prior to Monday’s open, forward earnings multiples for Nvidia Corp., Microsoft Corp. and Amazon.com Inc. swelled past 30 times, while the tech-heavy benchmark itself traded at 27 times — higher than its 10-year average, according to data compiled by Bloomberg.

Meta Platforms Inc. plans to invest as much as $65 billion on projects related to artificial intelligence in 2025, including building a giant new data center and increasing hiring in AI teams, Chief Executive Officer Mark Zuckerberg said.

3.US bond yields drop to multi-week lows

U.S. Treasury yields tumbled to multi-week lows on Monday, tracking steep declines in equities, as investors sought the safety of government bonds, with tech stocks sinking on the emergence of a Chinese discount artificial intelligence model.

The benchmark 10-year Treasury yield fell to a four-week low and was last down 7.1 basis points at 4.552%. Both 20-year and 30-year bond yields also slid to four-week troughs.

Valuations have been staying high as analyst estimates for projected profits have risen slower than stock prices. Any hit to the bottom-lines of these companies could quickly render these valuations untenable. 

The market moves also follow the Donald Trump administration’s high-profile announcement last week that saw OpenAI, SoftBank Group Corp. and Oracle Corp. pledge a $100 billion joint venture called Stargate to build out data centers and AI infrastructure projects around the US.

5.Riskier assets sell-off

The yield on 10-year Treasuries declined six basis points to 4.56%. The Bloomberg Dollar Spot Index was little changed. Bitcoin fell 2.8% to $101,648.82.

What exactly is DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.

The app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before delivering a response to a prompt. The company claims its R1 release offers performance on par with OpenAI’s latest and has granted license for individuals interested in developing chatbots using the technology to build on it.