U.S. technology firms plunged in Monday premarket trading, part of a global sell-off as Chinese startup DeepSeek sparked concerns over competitiveness in artificial intelligence and America’s lead in the sector.
Shares of chip designer Nvidia, a huge beneficiary of the AI hype, slid more than 11% ahead of the market open. This rout extended to other AI trades like Micron and Arm Holdings, as well as derivative plays tied to the power buildout such as Constellation Energy and Vistra.
International markets also felt the impacts. Netherlands-based chip companies ASML and ASM International tumbled more than 7% and 11%, respectively, in European trading. In Asia, Japanese chip-related stocks including Advantest and Tokyo Electron were broadly lower.
DeepSeek launched a free, open-source large-language model in late December, claiming it was developed in just two months at a cost of under $6 million — a much smaller expense than the one called for by Western counterparts. Last week, the company released a reasoning model that also reportedly outperformed OpenAI’s latest in many third-party tests.
The developments have stoked concerns about if the amount of money big tech companies have been investing in AI models and data centers is warranted. These announcements have also raised alarm that the U.S. is not leading the sector as much as previously believed.
“DeepSeek clearly doesn’t have access to as much compute as U.S. hyperscalers and somehow managed to develop a model that appears highly competitive,” Srini Pajjuri, semiconductor analyst at Raymond James, said in a note Monday.
Pajjuri said DeepSeek could “drive even more urgency among U.S. hyperscalers,” a group of large computing infrastructure players like Amazon and Microsoft. The analyst said these companies can leverage their advantage from access to graphics processing units to set themselves apart from cheaper options.
GPUs are a key part of the infrastructure required to train huge AI models. Nvidia is the market leader in GPUs.
Analysts at Citi said DeepSeek’s large-language model had “prompted investor inquiries around cost of compute.”
They note that, “while the dominance of the US companies on the most advanced AI models could be potentially challenged,” the access these tech firms have to advanced chips poses an advantage. “Thus, we don’t expect leading AI companies would move away from more advanced GPUs.”
The recent announcement of President Donald Trump’s $500 billion Stargate AI project is a “nod to the need for advanced chips,” they added.
Analysts at Bernstein, meanwhile, expressed doubt over whether the DeepSeek tool was actually built for under $6 million. They argued that the figure “does not include all the other costs associated with prior research and experiments on architectures, algorithms, or data.”
They stressed that DeepSeek’s models “look fantastic,” but shouldn’t be tohought of as “miracles.” Panic about the “death-knell of the AI infrastructure complex as we know it,” they said, was “overblown.”
— CNBC’s Lee Ying Shan, Alex Harring and Michael Bloom contributed to this story.