Global technology stocks faced significant losses as Chinese artificial intelligence startup DeepSeek introduced a cost-effective AI model. This innovation, capable of running on less advanced chips, raised doubts about the rich valuations of U.S. technology firms, particularly chipmaker Nvidia Corp. Shares of the Santa Clara-based company dropped 10% in premarket trading Monday, wiping out approximately $340 billion in market value.
Nasdaq 100 futures declined as much as 5.2% in overnight trading, marking the largest intraday drop since August, before recovering slightly to a 3.5% loss by 8:30 a.m. in New York. Similarly, Europe’s Stoxx 600 technology sub-index saw a sharp decline, led by a 12% drop in ASML Holding NV, a leading chip equipment manufacturer. Together, the Nasdaq 100 and the European tech index were set to lose a combined $1 trillion in market capitalization if the losses persisted.
DeepSeek's new AI model gained traction quickly, rising to the top of Apple's App Store rankings. Founded by Liang Wenfeng, a former quant fund chief, the model is viewed as competitive with offerings from OpenAI and Meta Platforms Inc. The startup’s ability to achieve this breakthrough without relying on cutting-edge chips challenges the prevailing investment narrative that high capital expenditure is essential for AI advancements.
Market strategists noted that the emergence of cost-efficient AI models could undermine the profitability of existing players in the AI supply chain, including chipmakers and data center providers. The model’s open-source foundations further emphasize the growing accessibility of advanced AI technology, reducing barriers for competitors and startups.
The effect of the DeepSeek development was both positive and negative globally. Chinese stocks in the AI sector surged, with companies including Merit Interactive Co. tapping daily volume caps. On the other hand, European and US markets were down in the world, with power equipment suppliers and semiconductor stocks the focus of investor worries.
Over time, DeepSeek’s model will gain more attention, which casts doubt on the notion of China as a laggard in AI development given the U.S. ban on the sale of advanced chips. This disruption shows that the competition in the AI market is getting even more global, and that the traditional players are being forced to adapt.