Nasdaq 100: Nvidia’s Plunge Highlights Risk of Concentrated Bets in U.S. Indices

Monday’s AI Shock: A Catalyst for Market Rotation, Not a Correction

Monday’s tech selloff, spurred by Chinese AI startup DeepSeek’s disruptive developments, could mark an inflection point for U.S. markets. While some fear the fallout from Nvidia’s historic $593 billion market cap loss signals broader instability, it may instead pave the way for capital rotation into underperforming corners of the market.

What Triggered the Selloff?

DeepSeek unveiled a low-cost AI model capable of rivaling U.S. tech giants, raising doubts about the dominance of AI leaders like Nvidia and OpenAI. Nvidia’s 17% plunge erased a staggering chunk of its value, triggering a 9.2% drop in the Philadelphia semiconductor index—its worst day since March 2020. The selloff reverberated globally, with key Nvidia suppliers like Japan’s Advantest down 19% in two days and Europe’s ASML shedding 7%.

Investors are now questioning whether the AI boom justifies the immense capital expenditure it has driven or if companies like DeepSeek will rewrite the narrative with cheaper, equally effective solutions.

How Concentrated is the Market’s Risk?

The “Magnificent Seven,” including Nvidia, Apple, Microsoft, and Meta, have driven much of the market’s gains over the past two years. Together, these megacap stocks make up nearly 45% of the Nasdaq 100 and one-third of the S&P 500’s weight. When these giants stumble, the broader indexes feel the impact. Monday’s 3% drop in the Nasdaq and 1.5% decline in the S&P 500 underscore this vulnerability.

However, some analysts see the selloff as an overdue rebalancing. With sentiment-driven trades crowding the AI sector, the DeepSeek shock may compel investors to reassess their exposure to concentrated tech bets.

Where Will the Money Flow Next?

Market observers argue this isn’t the beginning of a correction but rather a catalyst for sector rotation. Capital pulled from overvalued tech stocks could flow into undervalued areas such as small caps, industrials, or overlooked tech subsectors like cybersecurity. On Monday, stocks like Palo Alto Networks and ServiceNow posted gains, signaling early signs of this shift.

Additionally, earnings reports this week from Apple, Microsoft, Meta, and Tesla will offer fresh insight into the resilience of the tech sector and whether fears of AI disruption are overblown.

What Should Traders Watch?

The coming weeks may reveal whether DeepSeek’s model truly challenges U.S. AI supremacy or if the selloff reflects an overreaction. Traders should monitor corporate earnings, shifts in fund allocations, and broader economic data to gauge the sustainability of a market rotation. For now, the shake-up signals opportunity—not crisis—for investors willing to look beyond the AI hype.

More Information in our Economic Calendar.