The emergence of DeepSeek, a low-cost AI model from Chinese startup High-Flyer, has triggered a global selloff in technology stocks, particularly those tied to AI. Nvidia, a symbol of the AI boom, suffered a record $593 billion loss in market value, with its stock plunging 17% on Monday. The selloff extended globally, impacting markets from Japan to Silicon Valley.
DeepSeek’s model reportedly uses Nvidia’s H800 chips at a fraction of the cost of competitors, challenging the dominance of AI leaders like OpenAI and Google. While some, including OpenAI CEO Sam Altman, welcomed the competition, the development has fueled skepticism about overvalued tech stocks reliant on AI.
The selloff highlighted investor concerns about crowded AI trades, high valuations, and heavy capital investments by U.S. tech giants. Analysts warn that the reliance on a few tech firms leaves markets vulnerable, with David Bahnsen of The Bahnsen Group noting the lack of “margin of error” in these valuations.
Japanese tech firms like Advantest and Tokyo Electron, as well as U.S. companies including Broadcom, Microsoft, and Alphabet, saw significant declines. The Philadelphia Semiconductor Index dropped 9.2%, its steepest fall since 2020. The broader AI and data center sectors also faced pressure.
DeepSeek’s unexpected success challenges the notion that Chinese AI lags behind, with U.S. President Trump calling it “a wakeup call.” Investors are now looking to upcoming tech earnings for clarity, while concerns grow about AI’s impact on market stability and capital expenditures.