It's a good example of selling first and asking questions later, and investors feel that valuations are a bit high for technology in general and for semiconductors in particular, says Sam Stovall, chief strategist at analysis firm CFRA Research, to CNBC.
The background is the Chinese AI company Deepseek's latest AI model, which has been described as at least as good as, for example, the chat robot Chat GPT, but at a significantly lower cost and with fewer advanced data chips.
Deepseek has thus questioned the entire American technology sector's lead.
At the same time, there are questions about the size of financing in the opaque Chinese system being very difficult to clarify, as well as who is behind it. Furthermore, concerns are being raised about user data being stolen and misused.
Record-breaking fall
When trading closed in New York, the highly touted AI wonder Nvidia had nevertheless fallen 16.9 percent. According to the news agency Bloomberg, Nvidia's market value fell by $589 billion during the day: equivalent to approximately 6,400 billion kronor.
It is the largest single market value drop so far on Wall Street.
Semiconductor company Broadcom fell 17.4 percent.
Even companies affected by AI expansion were heavily impacted. Energy companies Vistra and Constellation Energy fell 28.3 and 20.9 percent, respectively.
Google owner Alphabet fell 4 percent, electric car company Tesla 2.3 percent, and software giant Microsoft 2.1 percent.
The Dow Jones industrial index rose 0.7 percent, but the broad S&P 500 index fell 1.5 percent.
The so-called fear index Vix (which measures market anxiety) surged upwards, 20.5 percent.
Meeting on interest rates
At the same time, market interest rates are falling sharply globally as money flows to safer investments than stock trading.
As the icing on the cake, the central bank Federal Reserve's (Fed) monetary policy committee (FOMC) is also starting its two-day meeting on Tuesday to decide on the country's interest rate.
There, the market has now priced in that the Fed will leave the interest rate unchanged with 99 percent certainty in the range of 4.25-4.50 percent.
Sam Stovall believes that it may be continued volatility for the technology sector going forward.
We will have volatility, especially when we have a highly valued market and external influences.
