U.S. stocks clawed back by the end of the day some of Monday's steep losses made after a Chinese startup's artificial intelligence model sowed doubts about the U.S. approach to building AI.
Chinese startup DeepSeek unveiled a free open-source large language model that it said took less than $6 million to build, igniting questions about whether big U.S. tech companies will need to continue plowing mega bucks into AI. DeepSeek became the most-downloaded free app in the U.S. on Apple’s App Store and Google Play.
Semiconductor shares suffered some of the biggest blows because their chips power AI. Nvidia shares, which shed almost 17% on Monday to shave nearly $600 billion of its market value for the biggest one-day drop ever for a U.S. company, recovered 8.82%. Broadcom closed up 2.57%.
The broad S&P 500 index closed up 0.92%, or 55.42 points, to 6,067.70; the tech-heavy Nasdaq rose 2.03%, or 391.89 points, to 19,733.72; and the blue-chip Dow added 0.31%, or 136.77 points, to 44,850.35. The benchmark 10-year Treasury yield inched up to 4.54%.
Did DeepSeek kill the bull market?
DeepSeek may have prompted investors to sell some high-flying tech stocks like Nvidia, which has soared more than 900% since 2023 , but investors are still buying non-AI related stocks.
"While the S&P 500 closed well in the red (on Monday) due to the high weighting of Nvidia, the equally weighted index even ended the day in positive territory," said Jochen Stanzl, chief market analyst at UK-based trading platform CMC Markets, "This is good news and speaks to the overall stability of the market."
Nevertheless, DeepSeek should serve as a “wake-up call” for American industries, U.S. President Donald Trump said late Monday.
“The release of DeepSeek AI from a Chinese company should be a wake up call for our industries that we need to be laser focused on competing,” Trump said. “Instead of spending billions and billions, you’ll spend less, and you’ll come up with, hopefully, the same solution under the Trump administration. We’re going to unleash our tech companies, and we’re going to dominate the future like never before.”
Some experts said DeepSeek could shift AI investments to smaller copmpanies.
"Short-term, that is bad news for NVIDIA because it will temper the demand" for its chips, wrote analysts at research firm Forrester. "However, longer term, the lower cost (and thus energy) will open up model creation opportunities for many, many more startups and enterprises."
Earnings matter
What might be more important right now to keeping stocks rallying is earnings, analysts said.
"Over the medium term, the bull and bear case for the Mag-7 (and with it the S&P 500) rests squarely on earnings." wrote Jim Reid, Deutsche Bank's global head of economics and thematic research, in a note.
The "Mag-7" or Magnificent Seven stocks are large-cap technology companies that have significant weighting in major stock indexes and have led much of the rally in stocks the past few years. They are Apple, Microsoft, Amazon, Alphabet (Google), Tesla, Meta (Facebook), and Nvidia.
Meta, Microsoft, Tesla and Apple are due to report their latest quarterly results this week. Many analysts said they'll also be eager to hear what the companies say about AI and DeepSeek.
Among earnings reported Tuesday:
Tariff talk lingers
Tariffs also continue to get attention, with newly confirmed Treasury secretary Scott Bessent pushing a gradual 2.5% universal U.S. tariffs plan, with levies rising over time as high as 20%, the Financial Times reported .
Trump, though, told reporters he wanted to set universal tariffs at a "much higher" rate than that. He also threatened a broad range of levies , including on steel, semiconductors and pharmaceuticals.
Markets have been on edge about Trump's proposed tariffs over concerns they could exacerbate inflationary pressures and slow Federal Resere rate cuts .
The Fed's expected to conclude its 2-day policy meeting on Wednesday with no rate move, but investors will be looking for hints as to whether the rate-cutting cycle is over or if they can expect more easing later this year.
Bitcoin
Bitcoin turned lower but held above the key $100,000 mark after slipping briefly below it on Monday.
The cryptocurrency was down 1% to $101,187.50, but investors still showed signs of optimism for the unit.
"Large players in the crypto market continue to invest in Bitcoin," said Konstantinos Chrysikos, head of customer relationship management at European broker Kudotrade, in a note. "Metaplanet is raising USD 745 million to acquire 21,000 BTC by 2026, marking the largest such operation for Bitcoin in Asian equity markets. Similarly, MicroStrategy continues to massively acquire Bitcoins potentially supporting prices."
(This story was updated with new information.)
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Wall Street, Nvidia recover ground after DeepSeek pounding on Monday
