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Tech stocks fell sharply on Monday as advances by Chinese artificial intelligence start-up DeepSeek cast doubt on whether the US could sustain its leadership in AI by spending billions of dollars on chips.
DeepSeek has attracted increasing attention from investors since the company last week released its latest large language AI model showing a comparable performance to those of US rivals OpenAI and Meta.
The start-up claims to have made advances in training models using far fewer Nvidia chips than US competitors, raising questions over Silicon Valley’s future purchases of AI-related hardware, as well as the likely return on investment.
The Chinese company’s chatbot, a rival to OpenAI’s ChatGPT, climbed to the top of Apple’s App Store downloads chart in the US over the weekend.
Shares in chipmaker Nvidia, one of the biggest winners from the AI revolution, were down 9 per cent in pre-market trading; Microsoft and Meta fell 4 per cent. Stock futures pointed to a 3.6 per cent drop in the tech-heavy Nasdaq, while the S&P 500 index was set to decline 2.2 per cent.
European chip equipment maker ASML was down 9.7 per cent in early trading, leading a 4.8 per cent drop in the Stoxx Europe 600 technology index.
“It’s DeepSeek for sure,” said one Tokyo-based fund manager of the selling on Monday, adding that investors were rapidly assessing whether hardware spending on AI could ultimately be a lot lower than current estimates.
AI investment by large-cap US tech companies hit $224bn last year, according to UBS, which expects the total to reach $280bn this year. OpenAI and SoftBank announced last week a plan to invest $500bn over the next four years in AI infrastructure.
Shares in Siemens Energy, which supplies electrical hardware for AI infrastructure, fell 19 per cent. Schneider Electric was down 8.7 per cent.
“It shows how vulnerable the AI trade still is, like every trade that is consensus and based on the assumption of an unassailable lead,” said Luca Paolini, chief strategist at Pictet Asset Management.
In Tokyo, Japanese chip companies Disco and Advantest, a partner of Nvidia, were down 1.8 per cent and 8.6 per cent, respectively. China’s leading chipmaker SMIC declined 8.4 per cent.
Furukawa Electric, which makes wire cables for data centres, had seen particularly sharp gains since November, but its shares tumbled by more than 11.3 per cent on Monday, making it the biggest faller in the Nikkei 225 benchmark.
Founded by hedge fund manager Liang Wenfeng, DeepSeek last week released a detailed paper explaining how to build a large language model that could automatically learn and improve itself.
“DeepSeek R1 is AI’s Sputnik moment,” venture capital investor Marc Andreessen wrote on X, drawing a comparison with the wake-up call to the US from the Soviet Union’s success in putting the first satellite into orbit.
“It seems as if there is a bit of reality dawning that China has not been sitting idle, even as these tariffs and investment restrictions on tech companies have been put in place,” said Mitul Kotecha, Asia head of emerging markets macro and foreign exchange strategy at Barclays.
Some analysts cautioned that the market reaction was overdone and that DeepSeek’s advances would ultimately prove a positive for AI chipmakers such as Nvidia.
Dylan Patel, chief analyst at chip consultancy SemiAnalysis, said cutting the cost of training and running AI models would over the longer term make it easier and cheaper for businesses and consumers to adopt AI applications.
“Advancements in training and inference efficiency enable further scaling and proliferation of AI,” said Patel. “This phenomenon has occurred in the semiconductor industry for decades, where Moore’s Law drove a halving of cost every two years while the industry kept growing and adding more capabilities to chips.”
Some Chinese tech stocks advanced today amid the excitement over DeepSeek, although the wider CSI 300 index closed down 0.4 per cent. In Hong Kong Baidu closed 4 per cent up and Alibaba was up 3 per cent.
“Tech is up today and the overall sentiment is quite positive in China”, said Wei Li, Head of multi-asset Investments for China at BNP Paribas.
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