Global stock markets are witnessing sharp divergences as Chinese artificial intelligence (AI) startup DeepSeek shakes up the tech world with its groundbreaking product release. US stock futures nosedived, led by steep losses in Nasdaq contracts, and Japanese chipmaker stocks faced heavy selling. On the other hand, Chinese and Hong Kong tech shares are surging on optimism over DeepSeek’s rapid rise, raising fresh questions about the future dominance of US tech giants like Nvidia and Google.
US futures fall, Japan shares tumble, China markets cheer
US stock index futures tumbled during Asian trading hours on Monday, with S&P 500 futures falling as much as 1 percent and Nasdaq 100 futures dropping nearly 1.9 percent. The sell-off reflects growing investor concern that DeepSeek’s cost-efficient AI model, developed using reduced-capability chips, could disrupt the business models of US giants like Nvidia Corp., OpenAI, and Google, reported Bloomberg.
Meanwhile, Asian markets offered a mixed response. Hong Kong's Hang Seng Tech Index climbed 2 percent, while Japan’s Nikkei 225 futures dropped 0.6 percent. Shares of Advantest Corp., a major supplier to Nvidia, plunged 8.6 percent in Tokyo trading, while SoftBank Group Corp., which surged last week on AI infrastructure plans, fell 5.4 percent.
Also read | DeepSeek R1 Explained: China’s ambitious answer to ChatGPT, Gemini, and why it is making waves
DeepSeek’s revolutionary AI model: Low cost, high impact
A Forbes report said that DeepSeek has sent shockwaves through Silicon Valley with its AI model, developed at a cost of just $5.6 million. Unlike its US counterparts, DeepSeek relies on open-source technology and lower-end chips, sidestepping the need for high-end hardware restricted by US export controls.
Founded in 2023 by Liang Wenfeng, a hedge fund and AI industry veteran, DeepSeek is funded solely by Wenfeng’s quantitative hedge fund, High-Flyer. This unique structure allows the company to focus on long-term research without the constraints of external investors.
Global implications: US tech dominance disrupted
“DeepSeek’s release is deeply problematic for the thesis that massive capital expenditure is necessary for AI dominance,” said Nirgunan Tiruchelvam, head of consumer and internet at Aletheia Capital, in an interview with Bloomberg. Charu Chanana, chief investment strategist at Saxo Markets, added, “While Nvidia has a strong foothold, DeepSeek's emergence underscores that AI dominance cannot be taken for granted.”
Also read | Crude cools: Why oil price is feeling the pressure from Donald Trump's tariff threat
The impact extends beyond the US. Chinese AI-linked stocks rallied in response to DeepSeek’s success, with the Shanghai Composite rising 0.2 percent and Hong Kong’s Hang Seng climbing 0.7 percent. However, chipmakers in Japan, such as Advantest and Disco Corp., faced significant losses amid fears of reduced demand for high-end AI chips.
While DeepSeek’s innovative AI model has reshaped market dynamics, it still faces challenges in competing with US tech giants. Forbes said that the company suffers from a significant compute disadvantage, exacerbated by US export restrictions on advanced chips. Bridging this gap will be essential for DeepSeek to scale its operations and compete globally.
The road ahead for US tech
The timing of DeepSeek’s release adds to the pressure on US tech firms, many of which are set to report earnings this week. Analysts expect profit growth for companies like Apple and Microsoft to have slowed, further intensifying concerns about inflated valuations in the AI sector.
Kyle Rodda, senior market analyst at Capital.com, told Bloomberg, “The proverbial arms race in AI investment has taken a very interesting turn. China’s advancements will undoubtedly catch the ire of the Trump administration, raising geopolitical risks for US firms.”
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
