Global financial markets faced significant turbulence on Monday as technology stocks experienced a sharp decline, primarily triggered by developments in China’s artificial intelligence sector. The catalyst for this downturn was the emergence of DeepSeek, a Chinese startup that has reportedly created an AI chatbot capable of outperforming Western competitors at a fraction of the cost.
DeepSeek, based in Hangzhou, achieved a milestone by becoming the most downloaded AI application on Apple’s App Store, surpassing OpenAI’s ChatGPT. The company claims to have developed its AI training model using Nvidia’s lower-end H800 chips for less than $6 million, while maintaining superior performance compared to its U.S. counterparts.
This development has sent shockwaves through the technology sector, particularly affecting major players who have invested heavily in AI infrastructure. Nvidia, a leading semiconductor manufacturer, saw its stock plummet 13.8% in premarket trading. Other tech giants also felt the impact, with Microsoft dropping 6.8% and Meta Platforms declining 4.6%.
The timing of this market disruption coincides with a crucial week for U.S. financial markets, as 103 S&P 500 companies prepare to release their fourth-quarter earnings reports. Additionally, the Federal Reserve is scheduled to hold its first meeting of the year, adding another layer of complexity to market dynamics.
Market tensions were further heightened by geopolitical developments, including President Donald Trump’s brief implementation of a 25% tariff on Colombian imports, which was later suspended after diplomatic negotiations regarding deportation flights reached a resolution. This incident has raised concerns about potential future trade disputes and their market implications.
The tech sector’s downturn has had broad market implications, with the Nasdaq facing potential market-cap losses approaching $1 trillion if premarket declines persist through the trading session. The S&P 500, which had posted gains of 1.74% in the previous week, was projected to open 135 points lower, while the Dow Jones Industrial Average prepared for a 370-point decline.
The market reaction has extended to bond markets, where benchmark 10-year Treasury yields fell 10 basis points to 4.521%, reaching levels not seen since January 2. European markets also reflected the global concern, with the Stoxx 600 declining 0.63% and chip design company ASML experiencing a significant 10.5% drop.
Asian markets weren’t spared from the selloff, with Japan’s Nikkei 225 falling 0.92% and the MSCI ex-Japan index declining 0.29%. The market response underscores growing concerns about the traditional investment thesis in AI technology, which has typically assumed that increased spending leads to better outcomes.
Morningstar Equity Analyst Javier Correonero noted that major tech companies had previously committed hundreds of billions of dollars to secure GPU supplies from Nvidia and other manufacturers to meet AI demand. However, DeepSeek’s achievement challenges this established paradigm, suggesting that superior AI performance might be achievable with significantly lower investment, potentially disrupting the business models of leading technology companies that have made substantial AI-related capital commitments totaling approximately $300 billion for the current year.