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(Bloomberg) -- Chinese artificial intelligence startup DeepSeek’s latest AI model sparked a $1 trillion rout in US and European technology stocks, as investors questioned bloated valuations for some of America’s biggest companies.
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DeepSeek’s latest AI model rose to the top of the Apple’s appstore charts over the weekend, presenting a visible challenge to costlier models like OpenAI and raising questions over the hundreds of billions in planned spending on the technology by the likes of Microsoft Corp., Meta Platforms Inc. and Alphabet Inc.
It also put a spotlight on AI chip producer Nvidia Corp., whose shares soared ninefold in the past two years, making it the highest-valued company in the world. The Santa Clara, California-based firm slid more than 10% in premarket trading Monday — a drop that would zap about $340 billion in market value if it were to hold in the cash session.
Nasdaq 100 futures tumbled as much as 5.2% in overnight trading before paring the loss to 3.5% as of 8:30 a.m. in New York. That marked the biggest intraday drop for the contracts since August. In Europe, tech stocks led market losses, with shares of chip equipment maker ASML Holding NV down as much as 12%. The Cboe Volatility Index, known as the VIX, surged to 21.5. The Nasdaq 100 and Europe’s Stoxx 600 technology sub-index were together set for a market capitalization wipeout of $1.2 trillion, if the losses hold.
“DeepSeek shows that it is possible to develop powerful AI models that cost less,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”
The rout in Nasdaq futures comes at the start of a big week for earnings from major tech companies including Apple Inc. and Microsoft. Profit growth is expected to have slowed while valuations remain inflated, once again causing concern over the large AI-driven rally in the sector.
Roughly 278,000 Nasdaq 100 futures contracts changed hands by 6:18 a.m. New York time, about three times more than the 30-day average for this 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 latest offerings. Lauded 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. Released last week, the product is now at the top of Apple Inc.’s App Store rankings, with users praising its transparency.