Chinese AI firm DeepSeek sparks global tech stock selloff

Tech stocks fell sharply on Monday as the advances of Chinese AI startup DeepSeek cast doubt on whether the US can maintain its lead in artificial intelligence by spending billions of dollars on chips.

DeepSeek has attracted increased investor interest since the company last week released its latest large language AI model, which performed comparably to those of US rivals OpenAI and Meta.

The startup claims to have made advances in training models using far fewer Nvidia chips than its US competitors, raising questions about Silicon Valley’s future purchases of AI-related hardware and possible return on investment.

Beats ChatGPT in the Apple Store

The Chinese company’s chatbot, a rival to OpenAI’s ChatGPT, climbed to the top of Apple’s App Store download list in the US over the weekend.

Shares of chipmaker Nvidia, one of the biggest winners of the artificial intelligence revolution, fell 9 percent in pre-market trading; Microsoft and Meta lost 4 percent. Stock futures pointed to a 3.6 percent drop in the technology-heavy Nasdaq, while the S&P 500 index was set to fall 2.2 percent.

Dutch chip equipment maker ASML fell 9.7 percent in early trading, leading a 4.8 percent drop in the Stoxx Europe 600 technology index.

“This is definitely DeepSeek,” a Tokyo-based fund manager said of Monday’s sell-off, adding that investors are quickly assessing whether hardware spending on artificial intelligence will be much lower than current estimates.

AI investment by large-cap US technology companies reached $224 billion last year, according to UBS, which expects it to reach a total of $280 billion this year. OpenAI and SoftBank announced last week that they plan to invest $500 billion in artificial intelligence infrastructure over the next four years.

Shares of Siemens Energy, which provides electrical equipment for artificial intelligence infrastructure, fell 19 percent. Schneider Electric lost 8.7 percent.

“This shows how vulnerable the artificial intelligence trade is still, like any trade based on the assumption of consensus and unquestionable leadership,” said Luca Paolini, chief strategist at Pictet Asset Management.

In Tokyo, Japanese chip companies Disco and Advantest, one of Nvidia’s partners, lost 1.8 percent and 8.6 percent respectively. China’s leading chipmaker SMIC fell 8.4 percent.

Furukawa Electric, which makes wire cables for data centers, had posted particularly sharp gains since November, but its shares fell more than 11.3 percent on Monday, the biggest drop on the Nikkei 225 benchmark.

‘The Sputnik moment of artificial intelligence’

DeepSeek, founded by hedge fund manager Liang Wenfeng, published a detailed paper last week explaining how to build a large language model that can 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.

“Even with these tariffs and investment restrictions on technology companies, the fact that China is not sitting idle seems to be emerging a little bit,” said Mitul Kotecha, Barclays’ Asia head of emerging markets macro and currency strategy.

‘There will be positive consequences’

Some analysts warned that the market reaction was overdone and that DeepSeek’s advances would ultimately be positive for AI chipmakers such as Nvidia.

Dylan Patel, principal analyst at chip consultancy SemiAnalysis, said that lowering the costs of training and running AI models will in the long run make it easier and cheaper for businesses and consumers to adopt AI applications.

“Improvements in training and inference efficiency are enabling AI to scale further and become mainstream,” Patel said. “This phenomenon has occurred for decades in the semiconductor industry, where Moore’s Law halves the cost every two years and the industry continues to grow and add more capabilities to chips.”

Although the broader CSI 300 index closed down 0.4 percent, some Chinese technology stocks rose today on the excitement generated by DeepSeek. In Hong Kong, Baidu closed up 4 percent and Alibaba closed up 3 percent.

“Technology has risen today and the overall mood in China is quite positive,” said Wei Li, Head of Multi-Asset Investments at BNP Paribas China.