US chipmaker Nvidia led a dramatic sell-off in technology stocks Monday, as the debut of a low-cost Chinese generative AI model threatened to disrupt American dominance in the booming AI industry.
DeepSeek, a Hangzhou-based startup, has unveiled a chatbot reportedly capable of matching the performance of leading US AI systems at a fraction of their development costs. The announcement sent Nvidia’s shares tumbling nearly 17%, wiping out nearly $600 billion in market value.
The tech-heavy Nasdaq index fell over 3% by market close, while the S&P 500 shed 1.5%.
DeepSeek claimed its model was developed with just $5.6 million, a stark contrast to the billions of dollars invested by US tech giants like OpenAI and Google. The startup’s chatbot has already become the top-rated free app on Apple’s US App Store, intensifying fears of a potential shift in the AI power balance.
Market Shock and Skepticism
The news has raised alarms among investors and analysts. Kathleen Brooks, research director at XTB, said the development marked a significant challenge to US tech supremacy.
“The focus is now on whether China can do it better, quicker, and more cost-effectively than the US, and if they could win the AI race,” Brooks said.
Art Hogan, chief market strategist at B. Riley Wealth, noted skepticism around DeepSeek’s claims but acknowledged the market’s heightened sensitivity. “Everyone is trying to figure out, ‘Can it be believed?’ and ‘What does it mean?’” Hogan said.
Adding to the drama, DeepSeek reported on Monday that it was limiting new user registrations due to “large-scale malicious cyberattacks.”
Global Fallout
The fallout wasn’t limited to Nvidia. Shares in other semiconductor companies took a hit, with Broadcom plunging 17.4% and Dutch chipmaker ASML falling 6.7%. Constellation Energy, which is investing heavily in AI energy capacity, saw its stock dive more than 20%.
European markets also felt the impact, with Frankfurt and Paris closing in the red, while London ended flat. In Asia, major markets slid as SoftBank, Nvidia’s AI partner and a key player in President Donald Trump’s new $500 billion US AI infrastructure initiative, fell over 8% in Tokyo.
Broader Economic Concerns
The tech turmoil came amid other economic pressures, including looming interest rate decisions by the US Federal Reserve and the European Central Bank, and a fresh threat of trade tensions.
President Trump, just days into his second term, announced Sunday plans to impose a 25% tariff on Colombian goods, escalating to 50% next week, in response to Colombia blocking deportation flights from the US. Colombian President Gustavo Petro initially retaliated with matching tariffs but later backed down, agreeing to accept deported citizens.
With major tech players like Meta and Microsoft set to report earnings this week, all eyes are on how US industry leaders will respond to DeepSeek’s disruptive entrance into the AI arena. The situation underscores rising tensions in the global race for AI dominance, with China emerging as a formidable competitor.
