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Nvidia stock plunged as much as 18% Monday as investors reacted to a new AI model from China.
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DeepSeek has challenged market narratives around AI, valuations, and high spending.
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Other stocks tied to the AI trade dropped, including Broadcom, Microsoft, and Alphabet.
Shares of chip titan Nvidia plunged on Monday amid the markets' fears over a new artificial intelligence tool from a startup in China.
Nvidia stock was down as much as 17.7% Monday morning, trading as low as $117.26. The stock had recovered slightly to trade at $120.56 just before noon ET.
Tech stocks were hammered after an unexpected launch by the Chinese artificial intelligence startup DeepSeek spooked investors.
The Nasdaq 100 fell about 3% and the S&P 500 was down nearly 2%.
Nvidia, led by CEO Jensen Huang, stands to have hundreds of billions wiped off its value if those losses hold until the end of the day. It closed Friday as the world's most valuable company worth almost $3.5 trillion after Nvidia stock gained almost 130% over the prior 12 months.
Microsoft was nearly 4% shortly before midday, while Palantir fell 6%, and Alphabet dipped 3%.
Dutch chip equipment maker ASML also fell 7.7% in Amsterdam.
In Asia, the OpenAI investor SoftBank fell more than 8%, while Tokyo Electron slipped 4.9%. The Japanese chip companies Disco Corp and Advantest, a key supplier to Nvidia, were also down 1.8% and 8.6% respectively.
The declines come after DeepSeek unveiled a new flagship AI model called R1 that showcases a new level of "reasoning." The Chinese AI lab's solution, released in a paper last Monday, was close in capability to OpenAI's model while being far cheaper.
OpenAI fully released o1 — "models designed to spend more time thinking before they respond" — to a positive reception in December.
DeepSeek has shown how quickly it can close the gap, sparking fears among investors, politicians, and developers about how long the US can maintain supremacy in the AI race.
"While they don't offer the cutting-edge tech of Nvidia's graphics processing units, the efficacy of the budget version and the willingness of DeepSeek to share its know-how may start to chip away at Nvidia's dominance," said Hargreaves Lansdown's Susannah Streeter.
Buying opportunity
Competing US and Chinese spheres of AI influence look set to emerge, Streeter added.
Dan Ives of Wedbush Securities wrote in a morning note that the AI-related slide represented a rare buying opportunity, particularly for Nvidia.
"No US Global 2000 is going to use a Chinese start-up DeepSeek to launch their AI infrastructure and use cases," he wrote. "At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia. Launching a competitive LLM model for consumer use cases is one thing ... launching broader AI infrastructure is a whole other ballgame and nothing with DeepSeek makes us believe anything different."