Tech sell-off deepens as DeepSeek triggers AI rethink

Reuters/Amir Cohen

• DeepSeek uses less data
• Investors dumping tech stocks
• $593bn wiped off Nvidia shares

Technology shares fell on Tuesday on the day after a global market rout sparked by the emergence of a low-cost Chinese artificial intelligence model, with investors questioning the sky-high valuation and dominance of AI bellwethers.

Shares of Nvidia, the poster child of the AI boom in recent years, dragged US stocks lower, sinking 17 percent on Monday and wiping $593 billion from the chipmaker’s market value, a record one-day loss for any company.

It all stemmed from a free AI assistant launched by Chinese startup DeepSeek last week that the firm said uses less data at a fraction of the cost of existing services. That garnered attention worldwide, although scepticism lingers.

OpenAI CEO Sam Altman called it an “impressive model”.

“We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!”, Altman, the head of the AI firm behind ChatGPT, said in a social media post.

The launch and increasing popularity of DeepSeek spurred investors to dump tech stocks globally, with ripples felt from Tokyo to Amsterdam to Silicon Valley.

Markets in tech-heavy South Korea and Taiwan are closed for the next few days for Lunar New Year. Mainland China is closed until February 4, leaving the spotlight firmly on Japanese firms.

On Tuesday, chip-testing equipment maker and Nvidia supplier Advantest lost 10 percent after diving nearly 9 percent on Monday. Chip-making equipment maker Tokyo Electron and technology startup investor SoftBank Group slid 5 percent.

“It’s clearly a sell first, ask questions later approach, and we’ve actually seen that kind of move in the past in Japan,” said Kei Okamura, a portfolio manager at Neuberger Berman, referring to a global market meltdown in August headlined by Japan’s Nikkei.

Over in the US, Broadcom finished down 17.4 percent, while ChatGPT backer Microsoft fell 2.1 percent and Google parent Alphabet closed down 4.2 percent. The Philadelphia semiconductor index fell tumbled 9.2 percent, its deepest percentage drop since March 2020.

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The sell-off has brought into the spotlight the crowded positioning among investors and the billions of dollars US tech giants are pouring in to develop AI capabilities, as well as the extremely high valuation of some of these firms.

“What makes Monday’s tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said David Bahnsen, chief investment officer at The Bahnsen Group.

“The excessive weighting these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indices was a significant and under-appreciated risk issue.”

AI race

Little is known about the Hangzhou startup behind DeepSeek, whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, records showed.

Its researchers wrote in a paper last month that its DeepSeek-V3 model, launched on January 10, used Nvidia’s lower-capability H800 chips for training, at a cost of less than $6 million.

The launch and the popularity of the app contrasts with the lacklustre reception that met the Chinese ChatGPT equivalent made by search engine giant Baidu , which exposed the gap in AI capabilities between US and Chinese firms.

The quality and cost efficiency of DeepSeek’s models have flipped this narrative on its head and spurred a warning from US President Donald Trump, who called it “a wakeup call for our industries”.

Japan’s digital minister Masaaki Taira said DeepSeek’s emergence had upended conventional wisdom that Chinese AI was years behind.

“It’s been said that Chinese generative AI might be about five years behind, but that turned out to be wrong and it seems to be on a fairly good track,” Taira said, adding that Japan was taking a closer look into suggestions that Chinese AI may be more cost effective