The chatbot developed by DeepSeek, a start-up based in the eastern Chinese city of Hangzhou, has apparently shown the ability to match the capacity of US artificial intelligence (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% on Wall Street, erasing nearly $600 billion ($1.05 trillion) of its market value.
The Nasdaq index finished down more than 3%.
DeepSeek, whose chatbot became the top-rated free application on Apple’s US App Store, said it spent only US$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.
B. Riley Wealth chief market strategist Art Hogan described the market’s response on Monday as “shoot first, ask questions later”, saying some are sceptical 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 start-up 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 chipmaker, Broadcom, fell 17.4% while stock in Dutch firm ASML, which makes the machines used to build semiconductors, tumbled 6.7%.
The Nasdaq index finished down more than 3% in one day. Photo / Getty Images
Constellation Energy, which is planning to build significant energy capacity for AI, sank more than 20%.
Wall Street’s broad-based S&P 500 index shed 1.5% while the Dow advanced 0.7%.
In Europe, the Frankfurt and Paris stock exchanges closed in the red while London finished flat.
Asian stock markets mostly slid.
Onlyt last week following his inauguration, Trump announced a US$500b venture to build infrastructure for AI in the United States led by Japanese giant SoftBank and ChatGPT maker OpenAI.
SoftBank tumbled more than 8% in Tokyo on Monday while Japanese semiconductor firm Advantest was also down more than 8% and Tokyo Electron off almost 5%.
Besides tech earnings, this week will bring interest-rate decisions from the US Federal Reserve and European Central Bank, ahead of American inflation data.
Equities enjoyed a healthy run-up last week on the hope Trump’s second administration would take a less-hardball approach to global trade.
However, his threat on Sunday to hit Colombian goods with a 25% tariff, rising to 50% next week, and revoke the visas of government officials set off alarm bells.
The move came after Colombian President Gustavo Petro blocked deportation flights from the United States.
In response to Trump’s decision, Petro initially announced retaliatory levies of 25% on imports from the United States.
But Bogota later backed down and agreed to accept the deported citizens, with Foreign Minister Gilberto Murillo saying they had “overcome the impasse.”
