In a surprising turn of events, Asian and global technology markets experienced significant volatility on Monday. The surge in popularity of a budget-friendly artificial intelligence model from China has raised doubts about the profitability of AI and the high demand for advanced semiconductors. This development has led to notable declines in tech stocks, particularly those associated with AI and chip manufacturing. Nasdaq futures dropped sharply, while key players like Nvidia and Tesla saw their shares slip. Investors are now questioning the sustainability of large capital expenditures in the tech sector, especially as this new AI model challenges the established narrative of high-cost, high-performance hardware being essential for AI advancement.
A Closer Look at the Market Reaction
In the early hours of Monday, financial markets across Asia and Europe witnessed a dramatic shift. In Singapore, Nasdaq 100 futures plummeted by 2.6%, and S&P 500 futures dipped by 1.4% by mid-morning in Europe. Meanwhile, in Tokyo, shares of Advantest, a supplier to Nvidia, fell by 8.5%. Frankfurt-listed shares of Nvidia also declined by approximately 7%, while other major tech giants such as Tesla, Amazon, and Meta each saw drops exceeding 2% in early European trading.
The catalyst for this market turbulence was the emergence of DeepSeek, a startup based in Hangzhou, China. DeepSeek launched a free AI assistant that reportedly uses lower-cost chips and less data compared to its competitors. This move has cast doubt on the assumption that AI development requires top-tier hardware and vast amounts of data. DeepSeek’s assistant quickly became the highest-rated free app on Apple’s App Store in the United States, surpassing rivals like ChatGPT.
Other sectors closely tied to AI and chip manufacturing were also affected. Shares of SoftBank Group, an investor in AI-focused startups, fell more than 8%, marking its largest single-day decline since September 30. Tokyo Electron, a leader in chip-making equipment, saw its stock drop by 5%. Even though markets in Taiwan and South Korea were closed, concerns spread to European tech stocks, with companies like ASML, which supplies equipment to major chipmakers, expected to face pressure when trading resumed.
Despite the uncertainty surrounding DeepSeek’s capabilities, the market is beginning to reassess the capital expenditure strategies of major tech firms. Analysts note that the crowded trade in AI-related investments may be unwinding, leading to broader questions about the efficiency and necessity of massive spending on cutting-edge technology.
From a broader perspective, this event highlights the rapid pace of innovation in the AI space and the potential for disruptors to challenge established norms. While it remains to be seen whether DeepSeek can maintain its momentum, the market’s reaction underscores the need for tech companies to continuously adapt and innovate. For investors, it serves as a reminder that even in rapidly evolving industries, cost efficiency and accessibility can play crucial roles in shaping market dynamics.