Dow Industrials’ Resilience in Rout Shows Promise of Cheap AI
(Bloomberg) — The tech-led rout that gripped US equity markets on Monday left one corner of the market relatively unscathed: the Dow Jones Industrial Average.
Buoyed by rallies of at least 2.8% in shares of Salesforce Inc., Johnson & Johnson and Nike Inc., the blue-chip index rose as much as 0.7% Monday, easily outpacing broader indexes like the S&P 500 and Nasdaq 100. The gains came even as Dow component Nvidia Corp. saw its stock tumble more than 17% at 3:43 p.m. in New York, erasing $600 billion in market value.
The rally in Salesforce and other Dow heavyweights highlights the threat from China’s DeepSeek doesn’t apply equally. Yes, makers of AI chips and developers of bots that run on them appear to face very real threats from China’s far-cheaper alternative. But companies that use AI to more efficiently power operations will likely stand to benefit from deploying open source DeepSeek over costlier alternatives.
More powerful AI models that can “run at a fraction of the original cost estimates” could bring easier and faster adoption of the technology, Barclays analyst Raimo Lenschow wrote in a note Monday. Companies that offer higher-level AI services should stand to gain as those will become cheaper to offer, the analyst said, pointing to firms like Salesforce, ServiceNow Inc. and Microsoft Corp.
In fact, even Nvidia itself called DeepSeek “an excellent AI advancement” on Monday.
At the same time, AI hasn’t supported the investment cases for the likes of Procter & Gamble Co., Coca-Cola Co. and Verizon Communications Inc. — a trio of Dow stocks that rallied at least 3.2% on Monday. All told, two-thirds of the index’s members traded higher on the day.
“This shows that people are not panicking, but rotating into the laggards and the stocks where valuations are not underpinned by the AI story,” said Jay Woods, chief global strategist at Freedom Capital Markets. “We have been so hyper-focused on the tech giants that the market’s gradually expanding breadth was overshadowed.”
It is rare to see the Dow Jones Industrial Average and the S&P 500 move in opposite directions on the same day. The last time the blue-chip gauge closed higher on the day when the S&P 500 fell 1.5% or more was in 1999.
Indeed, after being led largely by tech stocks over the past couple years, US equity indexes have started to see broader participation from the rest of the stocks universe in recent months, a sign of a healthier market.
The Dow’s relative resiliency is also in part due to its weighting methodology, with share price determining a component’s size rather than market-value weightings. That means Nvidia’s world-beating capitalization that has it at the top of the S&P 500 is subordinated in the Dow, where it ranks 23rd of the 30 members. While the S&P 500 sank 1.6%, more than 300 of its stocks advanced, underscoring the top-heavy nature of the selloff.
Other non-tech companies that use AI to enhance their products or services stand to gain as well, such as tractor manufacturer Deere & Co. The company uses AI to help farmers enhance productivity, by developing autonomous tractors, smart sprayers, and predictive analytics, said Mark Malek, chief investment officer at Siebert.
“AI will permeate every industry over time and enhance them,” Malek added. Right now, the market is trying to assess if it has correctly priced that opportunity or not.
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