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The stock market got hammered as AI fears sent investors scrambling. The Nasdaq (NASDAQ:QQQ) tumbled 2.5% this morning, with Nvidia (NASDAQ:NVDA) taking the biggest hitplunging 15% and wiping out over $400 billion in market value. The reason? Chinese AI startup DeepSeek just pulled off what many thought was impossible: training high-performing AI models without Nvidia's state-of-the-art chips. That's a direct hit to Nvidia's dominance and a wake-up call for investors who bet big on AI's endless spending cycle. Microsoft (NASDAQ:MSFT) and Alphabet (GOOGL) both dropped more than 2%, while semiconductor and infrastructure stocks tied to AI investment took a beating. Suddenly, the AI gold rush doesn't look so bulletproof.
DeepSeek's rise is forcing a hard reset on AI valuations. It's proving that cutting-edge AI doesn't need the most expensive chips, shaking the foundation of companies that banked on AI's insatiable demand for hardware. The fallout was brutalASML (NASDAQ:ASML) and AMD (NASDAQ:AMD) tumbled, while power and infrastructure stocks supplying the AI boom crumbled. Investors who had been riding the AI wave are now questioning if they've overpaid for the dream. Meanwhile, money rushed into safe-haven assetsbonds rallied, bitcoin tanked, and risk appetite evaporated overnight.
The timing couldn't be worse for Big Tech. Microsoft and Meta (NASDAQ:META), two of AI's biggest spenders, are set to release earnings this week, and investors are watching closely for any signs of slowing AI investments. Meanwhile, geopolitical tensions are only adding fuel to the fireDonald Trump's latest push to ramp up U.S. AI dominance and restrict chip exports to China is setting the stage for an AI arms race. The question now isn't just who will lead in AIbut whether the trillion-dollar AI hype cycle is about to face its biggest reality check yet.
This article first appeared on GuruFocus.