By Shashwat Chauhan and Sukriti Gupta
(Reuters) -Wall Street was set to drop at the open on Monday, as the surging popularity of a low-cost Chinese artificial intelligence model sparked a selloff in chipmaker Nvidia and other companies that stand to benefit from investments into the technology.
Chinese startup DeepSeek has rolled out a free assistant it says uses cheaper chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centers.
DeepSeek’s AI Assistant on Monday overtook rival ChatGPT to become the top-rated free application available on Apple’s App Store in the United States.
Investors are likely to question whether DeepSeek’s developments have the potential to really disrupt the industry, said Adam Sarhan, CEO of 50 Park Investments.
“If it is something that can, then we have a situation where all these AI stocks and the market as a whole will be re-priced.”
Nvidia, whose chips are the top choice for powering AI applications, dropped 11.4% in premarket trading, while industry peers Broadcom and Marvell Technology fell about 11% each.
Microsoft, Meta Platforms and Google-parent Alphabet fell between 1.8% and 3.6%.
AI server makers Dell Technologies and Super Micro Computer slid 5.6% and 8.1%.
Power companies, which are expected to see a surge in demand from energy-intensive data centers needed to develop AI technology, also came under pressure. Vistra and GE Vernova were the worst hit, tumbling more than 14%.
The Cboe Volatility Index, known as Wall Street’s “fear gauge”, hit its highest since Dec.20, last up 5.81 points at 20.55.
At 08:16 a.m. ET, Dow E-minis were down 316 points, or 0.71%, S&P 500 E-minis were down 125 points, or 2.04%, and Nasdaq 100 E-minis were down 763 points, or 3.48%.
Bucking the wider trend, AT&T rose 2.3% after its fourth-quarter wireless subscriber growth surpassed expectations.
Big Tech will remain in focus, as Microsoft, Meta, Apple and Tesla – four out of the “Magnificent 7” companies that powered the bulk of last year’s gains – are set to report quarterly numbers later this week.
Global markets were also on edge as the U.S. and Colombia pulled back from the brink of a trade war on Sunday after the White House said the South American nation had agreed to accept military aircraft carrying deported migrants.
On the economic radar, the U.S. Federal Reserve’s first interest rate decision of the year is expected on Wednesday, with markets widely expecting the central bank to hold its lending rate steady.
