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Key Takeaways
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The S&P 500 fell 1.5% on Monday, Jan. 27, as a Chinese startup's cost-efficient and high-performing AI model sent shockwaves through the U.S. tech sector.
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Shares of companies like power generators and chipmakers that have benefitted from lofty AI expectations tumbled to start the trading week.
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AT&T stock pushed higher as strong subscriber additions helped the telecom giant top quarterly sales and profit forecasts.
Major U.S. equities indexes were mixed to kick off the new trading week as the markets brace for the Federal Reserve's first interest-rate announcement under the second Donald Trump administration.
The tech sector came under pressure Monday as an app from Chinese artificial intelligence (AI) startup DeepSeek surpassed OpenAI's ChatGPT as the most downloaded free app on Apple's (AAPL) platform. DeepSeek said its model's performance is comparable with that of U.S. AI leaders despite reportedly being developed for a fraction of the cost, raising questions about AI profitability and market leadership.
The S&P 500 fell 1.5%, while tumbling tech stocks contributed to a 3.1% plunge for the Nasdaq. The Dow was the lone bright spot among the three main market gauges, edging 0.7% higher.
The growing uncertainty around AI weighed on shares of power generation companies that had surged over the past year as investors anticipated massive opportunities to provide electricity for energy-intensive AI data centers. Shares of Vistra (VST), the Texas-based utility that logged the S&P 500's second-best performance in 2024, suffered the benchmark index's heaviest losses Monday, plunging 28.3%. Constellation Energy's (CEG) shares, another beneficiary of lofty expectations for nuclear-powered AI data centers, fell 20.9%.
Utilities were not the only companies whose prospects have been hitched to AI infrastructure to see their share prices move lower following the DeepSeek developments. The souring outlook for AI data center opportunities also hit shares of networking equipment provider Arista Networks (ANET), which lost 22.4%. Shares of GE Vernova (GEV), the energy technology firm whose natural gas turbines have also garnered attention for their potential to meet data center power demand, dropped 21.4%.
Semiconductor companies that have benefitted from investors' AI enthusiasm also took a hit on Monday. Broadcom (AVGO) shares were down 17.4%, while shares of AI chip behemoth Nvidia (NVDA) ended 16.9% lower.
Shares of water and wastewater utility provider American Waterworks (AWK) jumped 6.9%, logging the top performance in the S&P 500 on Monday, after subsidiary Pennsylvania American Water secured $19.3 million in low-interest loans from the Pennsylvania Infrastructure Investment Authority. The company plans to use the funding for infrastructure improvement projects in the state, including replacing lead water service lines and enhancing wastewater treatment plants.