Deepseek Buzz puts tech stocks on track for $1 trillion wipeout

On By Littum

(Bloomberg) — Chinese artificial intelligence startup Deepseek rattled global tech stocks Monday and raised questions about America’s technological dominance.

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Buzz grew over the weekend about Deepseek’s latest AI model that was cost-effective while running on less advanced chips, casting doubt on the validity of the rich valuations for companies like Nvidia Corp. (NVDA), which has led the global AI stock boom as its chips have been seen as essential to the technology. Shares of the Santa Clara, Calif.-based company slipped 10% in premarket trading Monday.

NASDAQ 100 futures tumbled 3.4%, while contracts on the S&P 500 fell 2% as of 1 p.m. 05:00 in New York. In Europe, tech stocks led market losses, with shares in Chip Equipment Maker ASML having NV down 11%. The CBOE volatility index, known as the VIX, spiked higher. The NASDAQ 100 and Europe’s STOXX 600 technology sub-index were together set for a market capitalization spill of approx. $1 trillion if the losses hold.

“Deepseek shows that it is possible to develop powerful AI models that cost less,” said Vey-Sern Ling, CEO of Union Bancaire Privee. “It could potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”

About 200,000 NASDAQ 100 futures contracts changed hands at 4:45 a.m. New York time, about four times the 30-day average for that time of day, according to data compiled by Bloomberg.

The AI ​​model from Deepseek — founded by Quant Fund Chief Liang Wenfeng — is widely seen as competitive with Openai and Meta Platforms Inc.’s recent offerings. Hailed by investor Marc Andreessen as “one of the most amazing and impressive breakthroughs”, Deepseek’s app shows its work and reasoning as it addresses a user’s written query or prompt. The product was released last week and is now at the top of Apple Inc.’s App Store rankings, with users praising its transparency.

Chinese AI-related stocks responded positively, with mainland-listed Merit Interactive Co. among those who wave at their daily limits. Merit is among those with the clearest links to Deepseek, having stated in an earlier filing that it had incorporated the work-from-home AI firm’s model into marketing. In Hong Kong, the Hang Seng Tech index climbed up to 2% ahead of the Lunar New Year Holidays this week.