US chip-maker Nvidia led a rout in tech stocks Monday after the emergence of a low-cost Chinese generative AI model that could threaten American dominance in the fast-growing industry.
The chatbot developed by DeepSeek, a startup based in the eastern Chinese city of Hangzhou, has apparently shown the ability to match the capacity of US AI pace-setters for a fraction of the investments made by American companies.
Shares in Nvidia, whose semiconductors power the AI industry, fell nearly 17 percent on Wall Street, erasing nearly $600 billion of its market value.
The tech-rich Nasdaq index finished down more than three percent.
DeepSeek, whose chatbot became the top-rated free application on Apple’s US App Store, said it spent only $5.6 million developing its model — peanuts when compared with the billions US tech giants have poured into AI.
US “tech dominance is being challenged by China,” said Kathleen Brooks, research director at trading platform XTB.
“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,” she said.
Art Hogan, chief market strategist at B. Riley Wealth, described the market’s response Monday as “shoot first, ask questions later,” noting that some are skeptical of the Chinese company’s assertions.
“Everyone is trying to figure out ‘Can it be believed?’ and ‘What does it mean,'” Hogan said.
As DeepSeek rattled markets, the startup on Monday said it was limiting the registration of new users due to “large-scale malicious” cyberattacks on its services.
AI players Meta and Microsoft are among the tech giants scheduled to report earnings this week, offering opportunity for comment on the emergence of the Chinese company.
Shares in another US chip-maker, Broadcom, fell 17.4 percent while Dutch firm ASML, which makes the machines used to build semiconductors, saw its stock tumble 6.7 percent.
Constellation Energy, which is planning to build significant energy capacity for AI, sank more than 20 percent.
Wall Street’s broad-based S&P 500 index shed 1.5 percent while the Dow advanced 0.7 percent.
In Europe, the Frankfurt and Paris stock exchanges closed in the red while London finish flat.
Asian stock markets mostly slid.
Just last week following his inauguration, Trump announced a $500 billion venture to build infrastructure for AI in the United States led by Japanese giant SoftBank and ChatGPT-maker OpenAI.
SoftBank tumbled more than eight percent in Tokyo on Monday while Japanese semiconductor firm Advantest was also down more than eight percent and Tokyo Electron off almost five percent.
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