[New York Stock Market] Nasdaq Plunges 3% Amid China's DeepSeek 'AI Attack'... Nvidia Market Cap Drops by 860 Trillion Won

Shock in the U.S. Stock Market Over China's Low-Cost, High-Quality AI Development
Fears of an AI Stock Bubble Burst... Nvidia Plunges 17%
Attention on FOMC Key Rate Decision on the 29th

The Nasdaq index on the U.S. New York Stock Exchange plummeted more than 3% on the 27th (local time) following news of AI model development by Chinese AI startup DeepSeek. As it was reported that China succeeded in developing a competitive AI model at a low cost, fears of a stock price bubble collapse spread, causing AI-related stocks to fall sharply. AI leader Nvidia plunged nearly 17% in a single day, wiping out over 860 trillion won in market capitalization in an instant.

On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average (Dow Index) closed at 44,713.58, up 289.33 points (0.65%) from the previous trading day. The large-cap-focused S&P 500 index fell 88.96 points (1.46%) to 6,012.28, and the tech-heavy Nasdaq index dropped 612.47 points (3.07%) to close at 19,341.83.

Chinese AI startup DeepSeek shocked the market by releasing the open-source AI model 'R1' on the 20th, which was evaluated to outperform some models released by OpenAI, the developer of 'ChatGPT.' DeepSeek stated that it invested less than $6 million (about 860 million won) in development costs. If the company's claim proves true, there is growing speculation that demand for AI semiconductors, power, and data centers may not be as large as initially expected, fueling concerns over a bubble burst in AI-related stocks.

AI leader Nvidia plunged 16.86%. Nvidia's market capitalization evaporated by $600 billion (about 863 trillion won) that day, marking the largest single-day market cap loss for a single stock in U.S. history. Broadcom fell 17.4%, and AMD dropped 6.37%. Microsoft (MS) and Alphabet, Google's parent company, declined 2.14% and 4.03%, respectively, while Palantir Technologies slid 4.43%.

Steve Sosnick, Chief Strategist at Interactive Brokers, analyzed, "The sudden and negative market reaction to DeepSeek indicates that some of the core assumptions driving AI trading and major indices are being reassessed today," adding, "Some of today's sudden and negative market reactions are a direct result of a wave of complacency hitting the stock market."

Sam Stovall, Chief Investment Strategist at CFRA Research, commented on the market that day, saying, "It shows a good example of selling first and asking questions later," diagnosing that "investors feel that the valuations of overall tech stocks, especially semiconductor stocks, are somewhat excessive." He further explained, "Especially with an expensive market combined with external events, volatility is expected."

As risk appetite for stocks sharply retreated, demand for safe assets such as government bonds expanded, causing yields to fall significantly. The yield on the 10-year U.S. Treasury, a global bond yield benchmark, moved down 8 basis points (1bp = 0.01 percentage points) to 4.53% compared to the previous trading day, while the yield on the 2-year U.S. Treasury, sensitive to monetary policy, dropped 7 basis points to 4.19%.

Investor attention this week is focused on the Federal Open Market Committee (FOMC) regular meeting scheduled for the 28th-29th. The market has largely priced in that the U.S. Federal Reserve (Fed) will hold the benchmark interest rate steady at 4.25-4.5% at its first FOMC meeting this year. Amid pressure from former U.S. President Donald Trump, who demanded an "immediate rate cut," a key point of interest is what message Fed Chair Jerome Powell will deliver regarding the White House's attempts at monetary intervention.