Nasdaq posted its biggest one-day percentage drop since December 18 on Monday as a low-cost Chinese artificial intelligence model prompted a steep selloff in US chipmakers.

AI leader Nvidia sank 17 percent, and about US$590 billion in stock market value, the deepest ever one-day loss for a company on Wall Street, according to LSEG data. It was more than double the previous one-day record loss, set by Nvidia last September.

An index of semiconductor stocks dropped 9.2 percent in its biggest single-day percentage fall since March 2020.

Chinese startup DeepSeek has rolled out a free assistant that it says uses lower-cost 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 US rival ChatGPT in downloads from Apple's 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 (AI leader) 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. Optimism over AI and gains in Nvidia and other big technology-related shares helped to drive the stock market's sharp gains in 2024.

The Dow Jones Industrial Average rose 289.33 points, or 0.65 percent, to 44,713.58, the S&P 500 lost 88.96 points, or 1.46 percent, to 6,012.28 and the Nasdaq Composite lost 612.47 points, or 3.07 percent, to 19,341.83.

The S&P 500 registered its biggest one-day percentage fall since January 10.

Among other big tech-related companies, Microsoft shares fell 2.1 percent and Google-parent Alphabet dropped 4.2 percent, while AI server maker Dell Technologies declined 8.7 percent.

Data centre operators also tanked, including Digital Realty, which fell 8.7 percent.

Power companies, which are expected to see higher demand from energy-intensive data centres needed to develop AI technology, also fell. Vistra dropped 28.3 percent.

Tech stocks are likely to stay in focus this week, with some big technology names, including Microsoft, due to post-quarterly results.

Investors 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.

Market watchers also were digesting news that the US and Colombia had 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. (Reuters)