A jolt of panic hit major tech stocks on Monday, with investors rattled by fears that advances in artificial intelligence by Chinese storage startups could threaten the money-making power of tech giants in the United States, Europe and beyond.
Chinese AI company Deepseek has been making waves by matching the capabilities of advanced chatbots while using a fraction of the specialized computer chips that leading AI companies rely on. That has prompted investors to reconsider the big returns they expect on the heady valuations of chipmakers like Nvidia, whose equipment powers the most advanced AI systems, as well as the huge investments that companies like Google, Meta and Openai are making to build their AI. build to build their AI companies.
US markets tumbled at the open, with the S&P 500 down more than 2 percent and the tech-heavy Nasdaq down 3.5 percent. Tech stocks have also hurt markets in Europe and Japan.
The pain was concentrated on companies at the forefront of the AI boom, including the multitrillion-dollar behemoths that drove the biggest back-to-back annual gains for U.S. markets since the 1990s. Investors have worried about whether the rally has gone too far, leaving little room for error among the small group of tech companies that now dominate the market.
For those waiting for something to shake faith in tech valuations, Deepseek could be the start of a new phase in how investors think about AI, said Steve Sosnick, chief strategist at Interactive Brokers. He called the latest reports of increased competition in the industry a “big slap in the face” for investors who are resetting the way they can calculate risk.
Nvidia fell about 13 percent in early trading, a move that erased hundreds of billions of dollars in market value. Other chipmakers such as AMD and ARM, and semiconductor equipment specialists such as ASML also recorded substantial declines. The rise of Deepseek, which unveiled its new system last month but captured the tech world’s attention last week with a research paper detailing how it built the technology, “serves as a reminder that competition in the global AI arena is intensifying, and Nvidia may not be in the pole position forever,” wrote Charu Chanana, chief investment strategist at Saxo Bank, in a research note.
Shares of Meta, which last week announced a big jump in its data center spending plans, massive warehouses of computers that power artificial intelligence, fell about 3 percent. Microsoft, which has also bet heavily on AI, fell 4 percent. Oracle, a partner in a joint venture with Openai and Softbank unveiled last week at an event with President Trump, fell nearly 7 percent. SoftBank’s stock is also shedding more than 8 percent of its value in Tokyo.
The moves cast a cloud over the tech giants as Meta, Microsoft and others prepare to report their latest quarterly earnings this week. Looking past their bumper profits, analysts can direct pointed questions to executives about future financial prospects under simmering global competition.
(The New York Times has sued Openai and its partner, Microsoft, claiming copyright infringement of news content related to AI systems. The two tech companies have denied the suit’s claims.)
The turmoil is also hitting shares of utilities that have opened new business lines that serve the voracious power needs of data centers. Constellation energy fell by more than 13 percent.
US Treasury bonds rallied, as they often do when investors seek havens in times of turbulence.
Mr. Trump has pledged to accelerate production of American AI to compete against China for global leadership in the technology. On Thursday, he signed an executive order aimed at “removing barriers” to the development of artificial intelligence. As the US government works to maintain the country’s lead in the AI race, it is trying to limit the number of powerful chips, like those from Nvidia, that can be sold to China and other rivals.
While acknowledging the potential of Deepseek’s systems, Bernstein analysts noted that their “initial response does not include panic.” Any computing capacity freed up by more efficient AI systems would be absorbed by rapidly growing demand, they said: “We will still need and get a lot of chips.”
Danielle Kaye contributed reporting.