Tech stocks tumbled 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 last week released its latest large language AI model, which achieved a comparable performance to those of US rivals OpenAI and Meta but claims to use far fewer Nvidia chips.
The results sent a shockwave through markets on Monday, with Nvidia on course to lose more than $300bn of market value, the biggest recorded drop for any company, as investors reassessed the likely future investment in AI hardware.
“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.
Shares in Nvidia, one of the biggest winners from the AI revolution, were down 11 per cent in pre-market trading. European chip equipment maker ASML was down 10 per cent. Microsoft fell 6 per cent and Meta slid 5 per cent. Stock futures pointed to a 4.2 per cent drop in the tech-heavy Nasdaq, while the S&P 500 index was set to decline 2.4 per cent.
The rout extended well beyond traditional tech names. Siemens Energy, which supplies electrical hardware for AI infrastructure, plunged 22 per cent. Schneider Electric, a French maker of electrical power products that has invested heavily in services for data centres, fell 9.2 per cent.
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“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.
“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.
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.
“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.
The US imposed stringent restrictions on chip exports to China under former President Joe Biden, banning the sale of Nvidia’s most advanced models to the country.
Some analysts cautioned that the market reaction was overdone and that DeepSeek’s advances would ultimately prove 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 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.
