AI stock rout: The US selloff in 4 charts
Worries about Western AI dominance permeated the markets, with Nvidia stock plunging 17% alongside other chipmakers, utilities, and more.
Mentioned: ARM Holdings PLC (ARM), Apple Inc (AAPL), Advanced Micro Devices Inc (AMD), Amazon.com Inc (AMZN), Broadcom Inc (AVGO), Meta Platforms Inc (META), Alphabet Inc (GOOGL), Microsoft Corp (MSFT), Micron Technology Inc (MU), NVIDIA Corp (NVDA), Tesla Inc (TSLA)
Stocks tumbled on Monday in the US after Chinese artificial intelligence startup DeepSeek said its new R1 model could perform advanced AI tasks without the most advanced semiconductor chips, triggering a rethinking about the competitive landscape that had fueled massive gains in some stocks over the past two years.
The Morningstar US Market Index closed 1.45% lower on the day, with the largest losses coming in the large cap growth category of the Morningstar Style Box, which lost 3.11%. However, it wasn’t all bad news for stocks, as large cap value names fared much better, posting gains of 1.69%. In fact, some of the biggest tech names avoided the carnage altogether. Both Apple AAPL and Meta Platforms META posted gains Monday.
Demand for semiconductor chips has sent AI-related stocks soaring, but DeepSeek’s model doesn’t rely as heavily on the kind of new, higher-powered chips that investors have been counting on to fuel demand. Its capabilities “roughly match those of advanced models from OpenAI, Anthropic, and Alphabet GOOGL/GOOG,” explains Morningstar senior equity analyst Dan Romanoff, and boasts “materially lower training costs.” This “raised investor concerns about the necessity of the billions of dollars in capital expenditures that large US tech companies have made (and the billions more they plan to spend) on generative AI.”
Here are five charts that sum up Monday’s market action.
Nvidia stock tumbles
A sizeable portion of market losses on Monday were attributable to Nvidia NVDA, the semiconductor giant that has become synonymous with the AI boom. The company’s stock closed nearly 17% lower—a stunning rout for a firm that accounts for roughly 4 percentage points of the Morningstar US Market Index’s 26.9% return over the past year.
Morningstar will maintain its fair value estimate of $130 per share for Nvidia stock, says equity strategist Brian Colello. “Despite DeepSeek’s promise, we doubt the leading cloud vendors and AI builders will pause their plans, although it’s a risk that certainly bears watching. We believe AI GPU demand still exceeds supply, so while slimmer models may enable greater development for the same number of chips, we still think tech firms will continue to buy all the GPUs they can as part of this AI ‘gold rush,’” he explains.
Chipmakers follow suit
Shares of other giants in the semiconductor industry also struggled on Monday. Broadcom AVGO, Advanced Micro Devices AMD, Arm Holdings ARM, and Micron Technology MU fell sharply lower after trading relatively flat over the past month.
Utility stocks stumble
Monday’s selloff wasn’t confined to technology and semiconductor giants; utilities also took a hit. Strategists often point to the sector as a beneficiary of the AI boom because of the massive demand for electricity generated by the data centers that power AI computations.
The Morningstar US Utilities Index fell 3.6% on Monday, though some of its constituents saw much bigger losses. Over the past year, the index has returned roughly 40%, compared with about 27% for the stock market as a whole.
Magnificent seven divergence
While Nvidia floundered, other members of the “Magnificent Seven”—a cohort of mega-cap technology stocks that have driven the lion’s share of the stock market’s gains over the past two years—fared better.
Shares of Apple closed 3.3% higher on Monday afternoon, while shares of Meta Platforms were up 1.9%. Apple struggled last year amid worries that it had fallen behind the pack in the AI race. Microsoft MSFT, which saw a boost just last week on news of a new AI infrastructure investment from the Trump administration, fell 2.1%. Meanwhile, Alphabet GOOGL/GOOG lost 4.2%.
Romanoff says Morningstar’s analysts will maintain their fair value estimates for Microsoft ($490 per share), Amazon ($200), and Alphabet ($220). He expects these firms to benefit from reduced pricing of AI models like DeepSeek’s over the long run, and he thinks increased spending on AI could create tailwinds for their cloud businesses.
