NEW YORK — Wall Street’s leading firms faced significant losses on Monday as a rival from China appeared poised to disrupt the ongoing artificial intelligence (AI) hype that has benefitted them greatly.

The S&P 500 index fell by 1.5%, significantly impacted by a staggering 16.9% decline in Nvidia’s stock price. Other major technology shares also dropped, contributing to a 3.1% fall in the Nasdaq composite, marking its most considerable decline in over a month.

The primary impact was felt in AI-related sectors, while the broader market showed more resilience. The Dow Jones Industrial Average increased by 289 points, or 0.7%, as most U.S. stocks recorded gains. However, investors holding S&P 500 index funds, commonly found in many retirement plans, suffered due to the substantial influence that these major tech firms exert on market indices.

The unexpected market turbulence originated from China, where the company DeepSeek introduced a large language model capable of competing with American tech giants, potentially at a significantly lower cost. By Monday morning, DeepSeek’s app had surged to the top of the Apple App Store’s free apps list, an impressive feat considering the U.S. government’s restrictions on Chinese companies’ access to advanced AI chips.

Despite this development, skepticism surrounding the long-term implications of DeepSeek’s advancements remains prevalent. Questions linger about whether DeepSeek managed to bypass chip restrictions and the specific technology used, prompting skepticism due to the nature of the information sourced from China, according to Dan Ives, an analyst with Wedbush Securities.

The disruption stemming from DeepSeek rippled through AI stock markets globally. In Amsterdam, for example, the Dutch chipmaking equipment firm ASML saw its shares drop by 7%. Meanwhile, in Tokyo, Japan’s Softbank Group Corp. fell 8.3%, moving closer to pre-announcement trading levels after the company was part of a $500 billion AI infrastructure investment partnership touted by the White House.

On Wall Street, Constellation Energy suffered a more than 20% loss, with shares plummeting by 20.8%. The energy provider has plans to restart the previously closed Three Mile Island nuclear plant to generate power for Microsoft’s data centers.

In light of these developments, investors gravitated toward bonds, traditionally viewed as safer investment options compared to stocks. This migration lowered the yield on the 10-year Treasury bond from 4.62% to 4.52%.

This marks a notable shift for AI-related stock holders, who had enjoyed a meteoric rise fueled by hopes of transformative investment and the prospect of massive profits. However, the surging stock prices had also drawn criticism for inflating too quickly. For instance, before Monday’s downturn, Nvidia’s stock had skyrocketed from under $20 to above $140 within a span of two years.

Just last Friday, Mark Zuckerberg, CEO of Meta Platforms, indicated that the company plans to invest up to $65 billion this year while significantly expanding its AI teams. He also highlighted plans for a data center in Louisiana, which is expected to be remarkably extensive.

A select group of seven major companies now dominates the market, accounting for over half of the S&P 500’s performance last year, according to S&P Dow Jones Indices. These tech giants include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Their substantial size allows them to wield considerable influence over the S&P 500 and similar indexes that weigh larger firms more heavily. As a result, many individuals with 401(k) plans felt the impact of Nvidia’s decline, even if they were unaware of holding the stock, simply because they owned funds tracking the S&P 500.

Overall, the S&P 500 fell by 88.96 points to close at 6,012.28. The Nasdaq composite tumbled by 612.47 points to 19,341.83, while the Dow Jones Industrial Average gained 289.33 points, settling at 44,713.58.

Brian Jacobsen, chief economist at Annex Wealth Management, suggested avoiding rash reactions to the market’s sharp movements on Monday. “It’s possible that the news out of China may be exaggerated, and we could witness a reversal of these recent market changes. Alternatively, if the information proves accurate, it could lead to new investment opportunities,” Jacobsen stated.

Anticipation for further market fluctuations looms as companies like Apple, Meta Platforms, Microsoft, and Tesla prepare to disclose their earnings for the closure of 2024.

The pressure intensifies for these firms to maintain robust profitability, especially following an increase in Treasury yields. Rising bond yields contribute to downward pressure on stock prices as higher interest payments from bonds can make them more attractive compared to equities. The recent rise in yields coincides with a strong U.S. economy and concerns over potentially escalating inflation driven by tariffs and other policies favored by former President Donald Trump.

So far, large U.S. corporations have reported better-than-expected results. AT&T emerged as the latest beneficiary on Monday, with its stock increasing by 6.3%.

In overseas markets, movements for major indexes across Europe and Asia lacked the intensity seen with leading U.S. tech stocks. The Shanghai index dipped by 0.1% following a report indicating a decline in Chinese export orders, dropping to a five-month low.