U.S. stock markets managed to recover some of the significant losses incurred on Monday after a new artificial intelligence model introduced by a Chinese startup raised concerns about U.S. strategies in AI development.

DeepSeek, the Chinese startup, launched a free, open-source large language model that reportedly cost less than $6 million to develop. This revelation sparked debates on whether major American tech firms need to invest heavily in AI ventures. DeepSeek’s application quickly became the most downloaded free app in the U.S. across both the Apple App Store and Google Play.

Shares of semiconductor companies faced some of the most severe impacts since their chips are essential for AI operations. Nvidia experienced a historic drop of nearly 17% on Monday, reducing its market value by nearly $600 billion, which marked the largest one-day loss for any U.S. corporation. However, it rebounded slightly by recovering 8.82% in a subsequent trading session. Broadcom also saw its stock rise by 2.57%.

The S&P 500 index closed higher by 0.92%, gaining 55.42 points to finish at 6,067.70. The tech-focused Nasdaq surged by 2.03%, or 391.89 points, to reach 19,733.72, while the Dow Jones Industrial Average increased by 0.31%, rising 136.77 points to 44,850.35. Meanwhile, the yield on the benchmark 10-year Treasury note edged up to 4.54%.

Could DeepSeek threaten the bull market?

DeepSeek may have driven some investors to offload shares of high-performing tech companies like Nvidia, which has seen a remarkable increase of over 900% this year. Nonetheless, investments in stocks not related to AI remain active.

“Monday saw the S&P 500 close significantly down due to Nvidia’s high influence, yet the equally weighted index ended the day positively,” noted Jochen Stanzl, chief market analyst at CMC Markets in the UK. “This indicates good news and reflects the overall market stability.”

Despite that, U.S. President Donald Trump called DeepSeek’s launch a needed “wake-up call” for American industries on Monday evening.

“The introduction of DeepSeek AI by a Chinese company is a crucial reminder for our industries to focus intensely on competition,” Trump asserted. “Rather than spending billions, a smaller amount can yield similar results under my administration. We will empower our tech companies to ensure we lead the future like never before.”

Some analysts believe that DeepSeek could redirect AI investments towards smaller companies.

“In the short term, this poses challenges for Nvidia as it may reduce the demand for its chips,” analysts from Forrester noted. “However, in the long run, the reduced costs could present opportunities for numerous startups and organizations to create models.”

Earnings take center stage

Currently, analysts suggest that earning reports might be the key to keeping the stock rally going.

“The future performance of the ‘Mag-7’ and the S&P 500 hinges on their earnings,” stated Jim Reid, Deutsche Bank’s head of economics and thematic research in a recent note.

The “Mag-7,” or Magnificent Seven, includes major tech firms that have considerable influence on key stock indexes and have helped drive stock rallies in recent years. This group comprises Apple, Microsoft, Amazon, Alphabet (Google), Tesla, Meta (Facebook), and Nvidia.

This week, firms like Meta, Microsoft, Tesla, and Apple are set to disclose their latest quarterly results, and many analysts are keen to hear their insights on AI and DeepSeek.

Among the earnings announced on Tuesday:

• Starbucks shares rose over 3% after the coffee chain reported that same-store sales declined in the last quarter of the year, though less than analysts had anticipated. The company’s earnings exceeded predictions.
• JetBlue’s shares dropped 25.71% following a warning about increasing costs. The airline indicated that the cost per seat mile, excluding fuel, could escalate by 10% in the first quarter and 7% throughout the year.
• General Motors experienced a nearly 9% drop, marking one of its worst trading days in recent times, as fears arose regarding the impact of potential tariffs on profits and the electric vehicle market.
• Boeing reported its largest loss since 2020 due to issues within its commercial and defense sectors, compounded by a severe worker strike. Despite this, shares increased by 1.5% as investors looked forward to better future outcomes, with expectations for 737 Max deliveries likely to rise from 17 in December to the high 30s this month.
• Royal Caribbean’s profits surpassed expectations in the last quarter, and the company anticipates that its full-year earnings will also exceed forecasts, fueled by record high bookings and new river cruise offerings. Shares soared by 12%.
• Crane’s projected earnings for 2025 fell below analysts’ estimates, yet its shares gained about 12.5%.

Ongoing tariff discussions

Tariffs remain a hot topic, particularly with newly appointed Treasury Secretary Scott Bessent advocating for a gradual implementation of a 2.5% universal tariff plan, suggesting potential rises of up to 20% in the future, according to the Financial Times.

However, Trump indicated he wished to set the universal tariffs at an even “higher” level. He also warned of broad new levies on sectors like steel, semiconductors, and pharmaceuticals.

Market sentiments remain tense regarding Trump’s tariff proposals, with concerns that they might exacerbate inflation and hinder upcoming rate cuts from the Federal Reserve.

The Fed is expected to conclude a two-day policy meeting on Wednesday, and while no immediate rate changes are anticipated, investors will be closely observing for any indications about whether the rate-cutting cycle is concluded or if more easing could be expected later this year.

Bitcoin’s performance

Bitcoin saw a slight dip but managed to stay above the critical $100,000 milestone after briefly dropping below it on Monday.

The cryptocurrency fell by 1% to $101,187.50, but overall, investor sentiment remains positive.

“Significant players in the crypto market are still buying Bitcoin,” remarked Konstantinos Chrysikos, head of customer relationship management at European broker Kudotrade, in a statement. “Metaplanet is raising $745 million to secure 21,000 BTC by 2026, which represents the largest acquisition effort for Bitcoin in Asian equity markets. Additionally, MicroStrategy continues to amass Bitcoin holdings, which could provide price support.”

(This story was updated with new information.)

Medora Lee is a reporter specializing in money, markets, and personal finance.