Investors made a quick exit from a host of technology stocks from Tokyo to New York on Monday as the emergence of a low-cost Chinese artificial intelligence model challenged the dominance of current AI leaders such as Nvidia.
Raising questions about the level of investment needed for AI, startup DeepSeek launched a free AI assistant last week that it says uses less data at a fraction of the cost of incumbent services. And by Monday, DeepSeek’s assistant had overtaken U.S. rival ChatGPT in downloads from Apple’s app store.
The news led the Nasdaq to open down more than 3%. The tech-heavy index has since pared its losses but was still down 2.9% at midday, with leading AI chipmaker Nvidia being its biggest drag, reporting a loss of more than 15%.
The Nasdaq’s next biggest drag was chip maker Broadcom Inc, down 15%, followed by Microsoft, off 3.7%, and Google parent Alphabet, which fell 2.7%.
The Philadelphia semiconductor index tumbled 7.9%, eyeing its biggest percentage drop since March 2020.
Their declines followed a sell-off that started in Asia, with Japan’s SoftBank Group (9984.T), finishing down 8.3%, and moved through Europe where ASML fell 7.6%.
“If it’s true that DeepSeek is the proverbial ‘better mousetrap,’ that could disrupt the entire AI narrative that has helped drive the markets over the last two years,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centers. However, it could also mean that AI becomes more accessible and help kickstart the development of a wide array of useful applications,” Jacobsen said.
The hype around AI has powered a huge inflow of capital into the equity markets in the last 18 months, as investors bought into the technology, which inflated company valuations and lifted stock markets to new highs.
On Wednesday U.S. AI-related stocks rallied after President Donald Trump announced a private-sector plan for what he said would be a $500 billion investment in AI infrastructure through a joint venture known as Stargate.
Since then SoftBank has announced a $19 billion commitment to help fund the Stargate joint venture with companies including OpenAI and Oracle, whose shares were down 7.8% on Monday.
U.S.-traded shares in ASML, which counts Taiwan’s TSMC (2330.TW), Intel and Samsung (005930.KS), as its customers, dropped more than 6%. In Europe, energy technology company Siemens Energy lost 19%.
Little is known about the small Hangzhou startup behind DeepSeek. Its researchers wrote in a paper last month the DeepSeek-V3 model, launched on Jan. 10, used Nvidia’s H800 chips for training, spending less than $6 million—the figure referenced by Pictet’s Withaar.
H800 chips are not top of the line. Initially developed as a reduced-capability product to get around curbs on sales to China, they were subsequently banned by U.S. sanctions.
(Reuters)
