The Nasdaq dropped like a stone Monday as tech stocks, inflated for the past year by the promise of artificial intelligence, took a dive. The trigger was Chinese company DeepSeek, which last week rolled out a product similar to U.S. AI giants but using less powerful and much cheaper chips.
DeepSeek claims that it spent $5.6 million to train its latest model that rivals OpenAI’s ChatGPT and Meta’s Llama and was no. 1 on Apple’s App Store over the weekend. That wreaked havoc on the tech-heavy Nasdaq, down more than 3% in mid-afternoon trading, on investor fears of increased competition risk even as U.S players are spending billions on AI investment.
Just last week, President Donald Trump unveiled Stargate, a private sector initiative of OpenAI, Oracle and SoftBank to build AI infrastructure in the United States, with an outlay of up to $500 billion.
Dominant chip maker Nvidia took the brunt of the selling, down 16%. Other chipmakers Broadcom and Advanced Micro Devices are off by, respectively, 17% and 6%.
OpenAI investor Microsoft is down by 4%, Alphabet by 3%, Amazon by 1% as the selloff cycled through tech. Apple, which has not been a heavy investor in AI, is up 3%. Meta bucked the trend and is up a tick as investors anticipate solid numbers when the Mark Zuckerberg company kicks off tech earnings on Wednesday.
Other markets followed the Nasdaq lower with the S&P 5oo off 1.7% and the Dow Jones Industrial Average shedding 120 points.
Analysts were split. Some acknowledge the potential risk of DeepSeek managing to develop a competitive model on the cheap – although many cast doubt on the $5.6 million as too low. Others see the selloff as overdone and a buying opportunity.
“A handful of times over the last few years there have been major tech sell-offs that were golden buying opportunities … today is another one of them in our view,” wrote Dan Ives of Wedbush Securities. He called the DeepSeek model “impressive” but said the reality is that U.S. tech is focused on a broader endgame “with all the infrastructure and ecosystem that China and especially DeepSeek cannot come close to,” which is what’s propelling an estimated $2 trillion of cumulative capital spending over the next three years.
