Shares in Nvidia (NVDA) plunged 17% on Monday, wiping $589bn (£473bn) off of the AI chipmakers market value, which marked the largest single-day loss in stock market history.
The chipmaker led a sell-off across chip stocks and the broader market, after advancements by China's AI DeepSeek app sparked concerns about the level of spending in the 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.
This prompted the heavy selling of shares that have been boosted by the AI boom, namely chip stocks. In addition to Nvidia (NVDA), Broadcom (AVGO) tumbled 17%, while the Taiwan Semiconductor Manufacturing Company's (2330.TW, TSM) US-listed shares ended Monday's session 13% in the red.
Neil Wilson, analyst at TipRanks, said that Nvidia's (NVDA) fall on Monday was "not to be sniffed at when we look at exposures and margin debt, though analysts seem to generally be of the opinion that the move in the stock yesterday was overdone and is a 'buying opportunity'. Expect a bounce back."
Following the market panic on Monday, US president Donald Trump suggested that DeepSeek's AI advancements could be seen as a positive.
"The release of DeepSeek AI from a Chinese company should be a wake up call for our industries that we need to be laser focused on competing to win, because we have the greatest scientists in the world, even Chinese leadership told me that," he said.
Trump's comments come after the US president unveiled the $500bn 'Stargate' AI venture last week, in the first few days of his second term.
The project involves private sector investment aimed at building AI infrastructure in the US, with Oracle (ORCL), ChatGPT creator OpenAI, and Japanese conglomerate SoftBank (9984.T) among those committing to the joint venture. Nvidia (NVDA) and Microsoft (MSFT) were among the companies named as key initial technology partners.
Shares in Tokyo-listed investment holding company closed Tuesday's session in Asia more than 5% in the red.
Derren Nathan, head of equity research at Hargreaves Lansdown (HL.L), said: "It’s going to take a while for the dust to settle here but it’s by no means the end of the party for AI infrastructure."
"Many of the recent big cheques set aside for investment in the space look to have been signed off after DeepSeek hit the scene," he said. "These include the Stargate proposal, the Bank of China’s 5-year AI investment plan and Meta’s capex plans of up to $65bn for 2025."
After Trump returned to office last week, he signed an executive order delaying a ban of TikTok in the US. Trump has suggested a "joint venture" where half the company could be turned over to the US, as a solution to the issue.
Spokespeople for Microsoft (MSFT) and TikTok had not responded to Yahoo Finance UK's request for comment at the time of writing.
Microsoft (MSFT) shares closed Monday's session more than 2% in the red, amid the wider tech stocks sell-off and was flat in pre-market trading on Tuesday. The tech giant is one of 'Magnificent 7' companies due to report this week, with its second quarter results due out on Wednesday.
This is the latest clash between the EU and Tesla (TSLA) CEO Elon Musk, as the European Commission recently conducted a probe into his social media platform X. Germany's Handelsblatt newspaper reported on Friday that the commission had completed its probe and would soon decide to impose a fine worth millions of euros.
The European Commission did not immediately respond to Yahoo Finance UK's request for comment.
These developments come as Musk assumes his role running the Department of Government Efficiency (Doge), as a close adviser to Trump, having been a major supporter of his presidential campaign.
Tesla (TSLA) shares were down 2% on Monday and were up just less than 1% in pre-market trading on Tuesday.
Coffee shop chain Starbucks (SBUX) rolled out a number of changes in the US and Canada on Monday, ahead of the release of its latest results.
This included clamping down on how its coffee shops were being used, emphasising that they are for use by partners and customers, in a statement on its website.
