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Wall Street's 'fear gauge' at its 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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Futures slide: Dow 0.71%, S&P 500 2.04%, Nasdaq 3.48%

(Updates prices before markets open)

By Shashwat Chauhan and Sukriti Gupta

Jan 27 (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 ( NVDA ) 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 ( AAPL ) 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 ( NVDA ), whose chips are the top choice for powering

AI applications, dropped 11.4% in premarket trading, while

industry peers Broadcom ( AVGO ) and Marvell Technology ( MRVL )

fell about 11% each.

Microsoft ( MSFT ), Meta Platforms ( META ) and

Google-parent Alphabet fell between 1.8% and 3.6%.

AI server makers Dell Technologies ( DELL ) and Super Micro

Computer ( SMCI ) 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 ( VST ) and GE

Vernova ( GEV ) 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 ( T ) rose 2.3% after its

fourth-quarter wireless subscriber growth surpassed

expectations.

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'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.

The December reading of the personal consumption

expenditures (PCE) is due on Friday, a crucial metric in

assessing the trajectory of inflation.

Markets have also been weighing Trump's proposed tariffs,

which could exacerbate inflationary pressures and slow Fed rate

cuts, after he referred to trade policy multiple times last week

without providing concrete details of his plans.

All three major indexes clocked weekly gains last week

despite a pullback on Friday, with the S&P 500 retreating

from all-time highs.