The release of a new artificial intelligence model from China’s DeepSeek could mean a tough period is ahead for Nasdaq stocks. The Chinese AI company has not yet announced a release date, but it is expected to be imminent after the conclusion of the Lunar New Year celebrations last week. The startup has announced previous models as early as the calendar year, most memorably in January 2025 – when the launch of the open-source reasoning model shocked the stock market with its high performance and low cost. The Nasdaq Composite fell 3% on January 27, 2025, while Nvidia fell nearly 17%. The launch of DeepSeek V4 may cause another shock in the stock market. Last year, the startup worried investors when it said it took just two months, and not even $6 million, to build the model using low-powered Nvidia chips. This raised questions about America’s lead in AI as well as Big Tech’s massive spending in datacenters. Still, JPMorgan’s trading desk said it is sticking to a strategically bullish outlook, saying megacap tech could make a comeback and broader concerns over AI may fade. However, the bearish case includes the possibility that Nvidia misses its earnings results, and the stock market gets a DeepSeek Part Two moment. Here’s how the S&P 500, Nasdaq and various chip-related ETFs reacted after the DeepSeq release last year. Semiconductor stocks were particularly hurt by the launch. On January 27, 2025, the VanEck Semiconductor ETF (SMH) fell nearly 10%, and failed to recoup that gain a week to a month after release. Software stocks, represented by the iShares Expanded Tech-Software Sector ETF (IGV), were not impacted to the same degree, but still underperformed the S&P 500. On Jan. 27, the ETF fell 1.7%, while the broader index was 1.5% lower. Anyway, the stock market is already in a delicate situation. Apart from DeepSeek, traders are weighing President Donald Trump’s latest changes to his tariff agenda over the weekend, and anticipating the possibility of a US attack on Iran. Nvidia’s results later this week are also a major uncertainty for investors. Stocks sold off on Monday, with the Dow Jones Industrial Average falling more than 700 points, or 1.5%. The S&P 500 fell 1%, while the Nasdaq Composite slipped 1.1%.
