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Wall Street's 'fear gauge' touches highest since Dec. 20

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Nvidia ( NVDA ) falls after China's DeepSeek sparks AI market rout

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AT&T ( T ) rises on upbeat Q4 wireless subscriber growth

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Indexes down: Dow 0.1%, S&P 500 1.76%, Nasdaq 2.95%

(Updates with afternoon prices)

By Shashwat Chauhan and Sukriti Gupta

Jan 27 (Reuters) - The S&P 500 and the Nasdaq dropped on

Monday, as the surging popularity of a low-cost Chinese

artificial intelligence model knocked shares of chipmaker Nvidia ( NVDA )

and other companies benefiting 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 ( AAPL ) App

Store in the United States.

"It's clearly not good for ChatGPT to have an aggressive

competitor, but we don't buy the thesis that this is going to

tank the demand for high-end GPUs," said Infrastructure Capital

Advisors CEO Jay Hatfield, referring to the advanced

semiconductors needed to run AI applications.

AI chip leader Nvidia's ( NVDA ) shares slumped 15.1%, while

a gauge of semiconductor stocks slid 8.2%, heading for

its worst single-day drop since March 2020.

Microsoft ( MSFT ) and Google-parent Alphabet fell

3.8% and 2.8%, respectively, while AI server makers Dell

Technologies ( DELL ) and Super Micro Computer ( SMCI ) skid

8.6% and 11.1%.

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 ( VST ) and GE

Vernova ( GEV ) tumbled 27.9% and 19.7%, respectively.

Data center operators also tanked, with Digital Realty ( DLR )

sliding 12.9%.

At 11:21 a.m. ET, the Dow Jones Industrial Average

fell 43.01 points, or 0.10%, to 44,381.24, the S&P 500

lost 107.59 points, or 1.76%, to 5,993.65 and the Nasdaq

Composite declined 589.56 points, or 2.95%, to

19,364.74.

The Cboe Volatility Index, known as Wall Street's

"fear gauge", hit its highest since Dec. 20, last up 4.2 points

at 19.05.

Bucking the wider trend, AT&T ( T ) rose 5.3% to an over

three-year high after its fourth-quarter wireless subscriber

growth surpassed expectations.

Defensive sectors such as health care and consumer

staples also escaped the gloom, up more than 1.5%

each.

Big Tech will remain in focus, as Microsoft ( MSFT ), Meta, Apple ( AAPL )

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 is widely

expected to hold its lending rate steady in its first

interest-rate decision of the year due on Wednesday, while the

December reading of the personal consumption expenditures (PCE)

is scheduled for Friday.

Advancing issues outnumbered decliners by a 1.06-to-1 ratio

on the NYSE and declining issues outnumbered advancers by a

1.19-to-1 ratio on the Nasdaq.

The S&P 500 posted 24 new 52-week highs and no new lows

while the Nasdaq Composite recorded 48 new highs and 64 new

lows.