Global investors dumped tech stocks on Monday amid concerns over the emergence of a low-cost Chinese artificial intelligence model threatening the dominance of AI leaders like Nvidia. The chipmaker lost $593 billion in market value, marking the largest one-day loss for any company on Wall Street.

Last week, Chinese startup DeepSeek launched a free AI assistant, claiming it uses less data at a fraction of the cost of existing services. By Monday, the assistant had surpassed US rival ChatGPT in downloads from Apple’s app store.

The tech-heavy Nasdaq fell 3.1% on Monday, with Nvidia shares tumbling nearly 17%, registering a record one-day loss in market capitalisation. Broadcom dropped 17.4%, Microsoft 2.1%, and Google parent Alphabet 4.2%.

The Philadelphia semiconductor index fell 9.2%, its biggest drop since March 2020. Marvell Technology recorded the steepest decline, falling 19.1%.

The selloff began in Asia, where Japan’s SoftBank Group fell 8.3%, and continued in Europe, with ASML dropping 7%.

“If DeepSeek proves to be a ‘better mousetrap,’ it could disrupt the entire AI narrative that has driven markets for the past two years,” said Brian Jacobsen, chief economist at Annex Wealth Management. “It could mean less demand for chips, power production, and large-scale data centres.”

The AI hype has fuelled significant capital inflows into equities over the past 18 months, pushing valuations and stock markets to new highs.

As recently as last Wednesday, US AI-related stocks surged after former President Donald Trump announced a $500 billion private-sector plan for AI infrastructure under the Stargate venture. The initiative includes SoftBank, ChatGPT developer OpenAI, and Oracle, whose shares fell 13.8% on Monday.

Trump called DeepSeek a “wakeup call” on Monday, describing it as a potentially positive development.

Deepseek's breakthrough

DeepSeek’s apparent quality and cost-efficiency have shifted perceptions of Chinese AI. Its models, DeepSeek-V3 and DeepSeek-R1, have received widespread praise from Silicon Valley executives.

DeepSeek-V3, launched on January 10, was trained using Nvidia’s lower-capability H800 chips, costing under $6 million. DeepSeek-R1, released last week, is reportedly 20 to 50 times cheaper to use than OpenAI’s model.

Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek’s R1 model as AI’s “Sputnik moment.”

Despite the selloff, some investors see it as an overreaction. Daniel Morgan, senior portfolio manager at Synovus Trust Company, argued that DeepSeek’s AI models, designed for mobile phones and PCs, primarily compete with ChatGPT and Alphabet’s Gemini rather than data centres.

“Nvidia and other chipmakers like AMD and Broadcom remain crucial for the data centre market,” Morgan said.

Nvidia’s shares closed at $118.42 on Monday, down $24.20, bringing its year-to-date losses to 11.8%. However, the stock saw a 2.5% recovery in after-hours trading.

Among other stocks, Vertiv Holdings, which builds data centre infrastructure, slumped 29.9%. Power utility stocks also fell sharply, with Vistra losing 28.3%, Constellation Energy 20.8%, and NRG Energy 13.2%.

Investors flocked to safe-haven assets amid the volatility, with US Treasury 10-year yields falling to 4.53%, and the Japanese yen and Swiss franc gaining against the dollar.