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Wall Street was set to open sharply lower on Monday and Asian and European tech stocks fell, 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 by 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 whether the billions of dollars Silicon Valley has poured into AI over the past year has been overdone.
Its chatbot, a rival to OpenAI’s ChatGPT, climbed to the top of Apple’s App Store downloads chart in the US over the weekend.
Stock futures pointed to a 3.1 per cent drop in the tech-heavy Nasdaq, while the S&P 500 index was set to decline 1.8 per cent. Chipmaker Nvidia, one of the biggest winners from the AI revolution, was down 6.5 per cent and Microsoft weakened 3.5 per cent, according to overnight trading data from Robinhood.
Shares in European chip equiment maker ASML were down just over 8 per cent in early trading, leading a 4 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.
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 social media site 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.
But 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.”
Despite the weakness in tech stocks, Hong Kong’s Hang Seng index closed up 0.5 per cent. China’s benchmark CSI 300 closed down 0.4 per cent, while Japan’s Topix index ended 0.3 per cent lower.
