Technology stocks tumbled on Monday after Chinese artificial intelligence start-up DeepSeek stunned Silicon Valley with advances apparently achieved with far less computing power than US rivals.
Shares in California-based Nvidia, one of the biggest beneficiaries of spending on AI chips, plunged almost 17 per cent, wiping out almost $600bn of market value, a record loss for any company.
DeepSeek last week released its latest large language AI model, which achieved a comparable performance to that of US rival OpenAI, even though the company has previously claimed to use far fewer Nvidia chips.
Venture capital investor Marc Andreessen called the new Chinese model “AI’s Sputnik moment”, drawing a comparison with the way the Soviet Union shocked the US by putting the first satellite into orbit.
The results sent a shockwave through markets on Monday, as investors reassessed the likely future investment in AI hardware.
The tech-heavy Nasdaq Composite index fell 3.1 per cent, while the S&P 500 index declined 1.5 per cent. Microsoft dropped 2.1 per cent. Trading activity was more than a third higher than usual for the stocks listed on the US S&P 1,500 Composite index, in a sign of how investors were rushing to interpret how DeepSeek will affect Silicon Valley tech groups.
The rout extended well beyond traditional tech names. Siemens Energy, which supplies electrical hardware for AI infrastructure, plunged 20 per cent. Schneider Electric, a French maker of electrical power products that has invested heavily in services for data centres, fell 9.5 per cent.
Traders sought shelter in perceived havens, with shares in consumer staples companies such as Johnson & Johnson, Coca-Cola, General Mills and Hershey posting solid gains on Monday.
Apple, which is viewed as less exposed to the AI race than many Big Tech rivals, gained 3.3 per cent.
To some, the sell-off in the companies making the “picks and shovels” of the AI revolution echoed the share-price crash of IT hardware company Cisco when the dotcom bubble burst.
Nvidia, Broadcom and other chipmakers have benefited from Silicon Valley’s race to build ever-larger clusters of chips, which the likes of xAI boss Elon Musk and OpenAI’s Sam Altman have argued are needed to keep advancing AI’s capabilities.
Nvidia’s chief executive Jensen Huang and Broadcom’s Hock Tan have argued in recent weeks that they expected the data centre building frenzy to continue until the end of the decade.
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“It shows how vulnerable the AI trade still is, like every trade that is consensus and based on the assumption of an unassailable lead,” said Luca Paolini, chief strategist at Pictet Asset Management.
But some Wall Street analysts and AI researchers have questioned the hype surrounding DeepSeek’s achievement. “It seems categorically false that ‘China duplicated OpenAI for $5M’ and we don’t think it really bears further discussion,” wrote analysts at Bernstein in a note to clients.
Some researchers have even speculated that DeepSeek was able to take shortcuts in its own training costs by leveraging the latest models from OpenAI, suggesting that while it has been able to replicate the latest US developments very quickly, it will be harder for the Chinese company to pull ahead.
AI investment by large-cap US tech companies hit $224bn last year, according to UBS, which expects the total to reach $280bn in 2025. OpenAI and SoftBank announced last week a plan to invest $500bn over the next four years in AI infrastructure.
Even following DeepSeek’s latest release, Meta chief Mark Zuckerberg said on Friday that he planned to spend as much as $65bn on AI infrastructure this year.
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.
“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.
The US imposed stringent restrictions on chip exports to China under former President Joe Biden, banning the sale of Nvidia’s most advanced models to the country.
Some analysts argued that DeepSeek’s advances would ultimately prove positive for AI chipmakers such as Nvidia.
Dylan Patel, chief analyst at chip consultancy SemiAnalysis, said cutting the costs 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.”
Reporting by George Steer, Jennifer Hughes, Harriet Clarfelt and Will Schmitt in New York, Arjun Neil Alim in Hong Kong, Leo Lewis in Tokyo, Eleanor Olcott in Beijing and Tim Bradshaw and Ian Smith in London
