The release of a new artificial intelligence model from China’s DeepSeek could mean tough times continue for Nasdaq stocks. The Chinese AI company has not yet announced a release date, but it is expected to be imminent following the end of last week’s Lunar New Year celebrations. The company has announced previous models at the beginning of the calendar year, most memorably in January 2025, when the announcement of an open source inference model shocked the stock market with its high performance and low cost. On January 27, 2025, the Nasdaq Composite Index was down 3% and Nvidia was down nearly 17%. The launch of DeepSeek V4 could be another blow to the stock market. Last year, the startup alarmed investors by announcing that it took just two months and less than $6 million to build a model using low-capacity Nvidia chips. This cast doubt on America’s lead in AI and Big Tech’s huge spending on data centers. Still, JPMorgan’s trading desk said it remains tactically bullish, adding that mega-cap tech stocks could make a comeback and broader fears about AI could start to dissipate. However, the bear case includes the possibility that Nvidia misses earnings and the stock market has a DeepSeek Part 2 moment. Here’s how the S&P 500, Nasdaq, and various chip-related ETFs reacted after DeepSeek was released last year. Semiconductor stocks were particularly hard hit by the announcement. On January 27, 2025, the VanEck Semiconductor ETF (SMH) fell nearly 10% and was unable to recoup its gains in the week to month following the announcement. Software stocks, represented by the iShares Expanded Technology Software Sector ETF (IGV), were not affected to the same degree, but still underperformed the S&P 500 Index. On Jan. 27, the ETF was down 1.7% and the broader index was down 1.5%. As things stand, the stock market is already in a fragile situation. Apart from deep-seeking, traders are weighing the latest changes to President Donald Trump’s tariff policy over the weekend and anticipating a possible U.S. attack on Iran. Nvidia’s earnings results later this week are also a key uncertainty for investors. Stocks sold off on Monday, with the Dow Jones Industrial Average dropping more than 700 points, or 1.5%. The S&P 500 fell 1% and the Nasdaq Composite fell 1.1%.
