Wall Street’s superstars are tumbling Monday as a competitor from China threatens to upend the artificial-intelligence frenzy that’s created a spending bonanza.

The S&P 500 was down 1.7% in midday trading and heading for its worst day in more than a month. Big Tech stocks took some of the heaviest losses, with Nvidia down 18%, and they dragged the Nasdaq composite down 2.8%.

Stocks outside of AI-related industries held up much better, though, and the Dow Jones Industrial Average was down just 54 points, or 0.1%, as of 11:05 a.m. Eastern time. The Dow, which has much less of an emphasis on tech than the S&P 500 and Nasdaq, had briefly been on track for a small gain earlier in the morning.

Related Story: Billionaires, Tech Titans, Presidents: A Guide to Who Stood Where at ...

DeepSeek Developed Large Language Model

The shock to financial markets came from China, where a company called DeepSeek said it had developed a large language model that can compete with U.S. giants but at a fraction of the cost. DeepSeek’s app had already hit the top of Apple’s App Store chart by 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.

Skepticism, though, remains about how much DeepSeek’s announcement will ultimately shake the AI supply chain, from the chip makers making semiconductors to the utilities hoping to electrify vast data centers gobbling up computing power.

“It remains to be seen if DeepSeek found a way to work around these chip restrictions rules and what chips they ultimately used as there will be many skeptics around this issue given the information is coming from China,” according to Dan Ives, an analyst with Wedbush Securities.

DeepSeek’s disruption nevertheless rocked stock markets worldwide.

Related Story: Tech Founder Pledges to Give Away Half His Wealth to Make the American Dream ...

In Amsterdam, Dutch chip supplier ASML slid 6.6%. In Tokyo, Japan’s Softbank Group Corp. lost 8.3% to pull closer to where it was before leaping on an announcement trumpeted by the White House that it was joining a partnership to invest up to $500 billion in AI infrastructure.

And on Wall Street, shares of Constellation Energy sank 19%. The company has said it would restart the shuttered Three Mile Island nuclear power plant to supply power for data centers for Microsoft.

All the worries sent investors toward bonds, which can be safer investments than any stock. The rush sent the yield of the 10-year Treasury down to 4.54% from 4.62% late Friday.

It’s a sharp turnaround for the AI winners, which had soared in recent years on hopes that all the investment pouring in would remake the global economy and deliver gargantuan profits along the way.

Nvidia’s Stock Was Soaring Before Monday

Before Monday’s drop, Nvidia’s stock had soared from less than $20 to more than $140 in less than two years, for example.

Other Big Tech companies had also joined in the frenzy, and their stock prices had benefited too. It was just on Friday that Meta Platforms CEO Mark Zuckerberg was saying he expects to invest up to $65 billion this year, while talking up a datacenter Meta is building in Louisiana that is so large it would cover a significant part of Manhattan.

A small group of such companies has become so dominant that they’ve come to be known as the “Magnificent Seven.” These companies — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — alone accounted for more than half the S&P 500’s total return last year, according to S&P Dow Jones Indices.

Related Story: Biden Warns of Dangers of ‘Oligarchy’ of Ultra-Rich, ...

Their immense sizes in turn have also given them huge sway over the S&P 500 and other indexes that give more weight to bigger companies. It shows the risk of betting too much on just a few winning stocks, something that market experts call “concentration risk.”

That “can feel good when those few names or ideas are on the ascent, but it is even more dangerous when disruptions take place,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Still, he suggested not overreacting to Monday’s sharp swings. “It is possible that the news out of China could be overstated and then we could see a reversal of the recent market moves,” Jacobsen said. “It is also possible that the news is true, but then that would present new investment opportunities.”

Big Tech to Report Profits in Coming Weeks

More big swings may be ahead. Apple, Meta Platforms, Microsoft and Tesla are all on the schedule this upcoming week to report how much profit they made at the end of 2024.

The pressure is on companies to keep delivering strong profits, particularly after a recent jump in Treasury yields, even with Monday’s decline. When bonds are paying more in interest, they put downward pressure on stock prices.

So far, big U.S. companies have been reporting better results than analysts expected. AT&T became the latest on Monday, and its stock rose 5.9%.

Related Story: Billionaires, Tech Titans, Presidents: A Guide to Who Stood Where at ...

In stock markets abroad, movements for indexes across Europe and Asia weren’t as forceful as for the big U.S. tech stocks. France’s CAC 40 fell 0.1%, and Germany’s DAX lost 0.4%.

In Asia, stocks edged 0.1% lower in Shanghai after a survey of manufacturers showed export orders in China dropping to a five-month low.

The Federal Reserve holds its latest policy meeting later this week. Traders don’t expect recent weak data to push the Fed to cut its main interest rate. They’re virtually certain the central bank will hold steady, according to data from CME Group.