US STOCKS-Nasdaq, S&P 500 fall; China's DeepSeek AI model hits tech shares

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By Caroline Valetkevitch

NEW YORK, Jan 27 (Reuters) - The S&P 500 and the Nasdaq ended sharply lower on Monday as Nvidia and other chipmakers sold off after surging popularity of a low-cost Chinese artificial intelligence model raised investor worries about the outlooks for current AI leaders in the United States.

Nvidia's shares NVDA.O sank, while an index of semiconductor stocks .SOX had its biggest single-day percentage fall since March 2020.

Chinese startup DeepSeek has rolled out a free assistant it says uses cheaper chips and less data, raising questions about investor expectations that AI will drive demand along a supply chain from chipmakers to data centers.

DeepSeek's AI Assistant by Monday had overtaken U.S. rival ChatGPT in downloads from Apple's AAPL.O App Store.

Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh, said there are still many questions about the DeepSeek model and its impact.

"Today is a drubbing for these stocks, but I don't necessarily think whatever's going to happen in the short while here - the next couple of days - is where they are ultimately valued," she said.

According to preliminary data, the S&P 500 .SPX lost 87.85 points, or 1.44%, to end at 6,013.39 points, while the Nasdaq Composite .IXIC lost 607.47 points, or 3.04%, to 19,346.83. The Dow Jones Industrial Average .DJI rose 291.54 points, or 0.67%, to 44,715.79.

Nvidia and other big technology-related companies drove the stock market's sharp gains in recent years.

Among other big tech-related companies, Microsoft MSFT.O and Google-parent Alphabet GOOGL.O also were down, while AI server maker Dell Technologies DELL.N fell sharply.

Data center operators also tanked, including Digital Realty DLR.N.

The Cboe Volatility Index .VIX, known as Wall Street's "fear gauge", rose.

Earnings from some big technology companies are due this week, including from Microsoft.

Financial markets also were digesting news that 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.

Investors also are keen to hear from the Federal Reserve, which is widely expected to hold its lending rate steady in its first interest-rate decision of the year due on Wednesday.