Tech Stocks Reel as Low-Cost AI Model Shakes Up Industry
The global technology sector is reeling after a Chinese startup unveiled a low-cost artificial intelligence model, sparking concerns about the dominance and valuation of AI leaders. Shares of chipmaker Nvidia, a poster child of the AI boom, plummeted 17% on Monday, wiping out a record $593 billion from its market value.
A New Competitor Emerges
The free AI assistant, launched by Chinese startup DeepSeek, uses less data at a fraction of the cost of current services. This has garnered attention worldwide, with OpenAI CEO Sam Altman calling it an “impressive model.” The launch has spurred investors to dump tech stocks globally, with ripples felt from Tokyo to Amsterdam to Silicon Valley.
Global Markets Feel the Impact
On Tuesday, chip-testing equipment maker Advantest, a supplier to Nvidia, lost 10% after diving nearly 9% on Monday. Chip-making equipment maker Tokyo Electron and technology start-up investor SoftBank Group slid 5%. In Europe, shares in Dutch semiconductor company ASML opened up 0.9%, while shares in BE Semiconductor rose 1.2%. In the U.S., Broadcom finished down 17.4%, while ChatGPT backer Microsoft fell 2.1% and Google parent Alphabet closed down 4.2%.
No Room for Error
The selloff has highlighted the crowded positioning among investors and the billions of dollars U.S. tech giants are pouring into developing AI capabilities. “What makes Monday’s tech selloff so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said David Bahnsen, chief investment officer at The Bahnsen Group.
The AI Boom Under Scrutiny
The hype around AI has powered a huge flow of capital into equities, inflating valuations and lifting stock markets to record highs. However, the emergence of DeepSeek has raised questions about the sustainability of this boom. Investor focus will be on the flurry of tech earnings this week, with executives likely keen to calm frayed nerves and ease concerns about capital spending.
The AI Race Heats Up
Little is known about the Hangzhou startup behind DeepSeek, but its researchers claim that its DeepSeek-V3 model uses Nvidia’s lower-capability H800 chips for training, at a cost of less than $6 million. The launch has flipped the narrative on its head, prompting a warning from U.S. President Donald Trump, who called it “a wakeup call for our industries.” Japan’s digital minister Masaaki Taira said DeepSeek’s emergence had upended conventional wisdom that Chinese AI was years behind.
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