Global Tech Stocks Plummet as Chinese AI Startup Challenges US Dominance
The tech world was sent reeling on Monday as Chinese artificial intelligence startup DeepSeek unveiled a cost-effective AI model that can run on less advanced chips, casting doubt on the high valuations of companies like Nvidia Corp. This breakthrough has sparked concerns over America’s technological dominance and sent global tech stocks tumbling.
A New Era of AI Competition
DeepSeek’s innovative model, founded by quant fund chief Liang Wenfeng, is being hailed as a game-changer in the AI industry. Its app, which shows its work and reasoning as it addresses user queries, has shot to the top of Apple’s App Store rankings, with users praising its transparency. This development has significant implications for the entire AI supply chain, which has been driven by high spending from a small handful of hyperscalers.
Market Reaction
The news sent Nasdaq 100 futures plummeting by as much as 3.2%, while contracts on the S&P 500 fell 1.9%. In Europe, tech stocks led market losses, with shares of chip equipment maker ASML Holding NV down more than 8%. Futures contracts on the Cboe Volatility Index, or VIX, spiked higher. Chinese AI-related stocks, on the other hand, reacted positively, with mainland-listed Merit Interactive Co. surging by its daily limits.
A Shift in AI Power Dynamics
DeepSeek’s achievement raises questions about the massive resources dedicated to AI development in Silicon Valley. “It calls into question the significant capital expenditure and operating expenses that have been incurred,” said Nirgunan Tiruchelvam, head of consumer and internet at Singapore-based Aletheia Capital. This development also challenges the notion that China’s AI technology is years behind its US counterparts.
Earnings Season Looms
The decline in Nasdaq futures comes at the start of a big week for earnings from major tech companies, including Apple and Microsoft Corp. Profit growth is expected to have slowed, while valuations remain inflated, causing concern over the large AI-driven rally in the sector. The Nasdaq 100 is trading at 27 times estimated forward earnings, compared with its three-year average of 24 times.
A Warning to Established Players
The emergence of DeepSeek serves as a reminder that AI dominance cannot be taken for granted. “While current leaders like Nvidia have a strong foothold, it is a reminder that competition is intensifying,” said Charu Chanana, chief investment strategist at Saxo Markets. As earnings season unfolds, investors will be watching closely to see how established players respond to this new challenge.
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