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Tech stocks slid on Monday morning, as advances by Chinese AI start-up DeepSeek sparked concerns about increased competition, raising doubts about the level of spending in this space in the US.
DeepSeek develops open-source large language models and its app has been climbing up the download charts, with the company launching its R1 model last week.
The start-up claims that the new model offers "performance on-par" with the OpenAI o1 model. DeepSeek also said that its AI assistant runs off lower cost chips and uses less data than leading models.
Tech stocks tumbled as investors appeared spooked by these advancements. Nasdaq futures (NQ=F) fell, with chipmaker Nvidia (NVDA) plunging nearly 12% in pre-market trading. Other tech stocks felt the pain too, with Microsoft (MSFT) and Amazon (META) both falling more than 4% before the bell.
Meanwhile, Dutch company ASML (ASML.AS), which makes lithography machines that are key to making chips, was down 8% in early afternoon trading in Europe.
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Ben Barringer, technology analyst at Quilter Cheviot, said: "DeepSeek’s success will serve to intensify the US-China AI war, particularly following the recent announcement of the 'Stargate' project in the US."
Last week, newly reinstated US president Donald Trump unveiled the $500bn "Stargate" project, a private-sector investment plan to build AI infrastructure in the US. The project is backed by SoftBank (SFTBY), Oracle (ORCL), and OpenAI, with Nvidia and Microsoft also named among the key initial technology partners.
Barringer said the DeepSeek developments also provide a "wake-up call and somewhat of a question mark on how much needs to be spent in order to build a model, and whether quite the level of CapEx we have been seeing is really required."
He added: "However, bringing the price of model training down is no bad thing as it will help to lower the entry point and this price elasticity could help drive usage and volume."
Do you think this could prompt other big US tech firms to compete with the likes of DeepSeek or does it spell trouble for these giants? Vote in our poll below.
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