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Shifts in AI Market Sentiment as New Entrant Challenges Industry Norms

SINGAPORE (Reuters) – Nasdaq futures experienced a notable drop, and technology stocks in Japan faced a downturn on Monday as the rise of a Chinese AI model sparked uncertainty about the long-term profitability of artificial intelligence and the tech sector’s substantial demand for advanced chips.

By the afternoon in Asia, tech stocks were down by 2.4%, with the shares of Nvidia supplier Advantest plummeting 8.5% in Tokyo.

The emerging startup, DeepSeek, has unveiled a free AI assistant claiming to operate with lower-cost chips and less data. This development appears to challenge the prevailing market view that anticipates an increase in demand for chips and server infrastructure driven by the AI sector.

“It’s indicative of a crowded market, and DeepSeek provides a catalyst for investors to recalibrate their positions,” commented Wong Kok Hoong, head of equity sales trading at Maybank. This has notably impacted shares of SoftBank Group, which focuses on AI startups, seeing a decline of over 8% – marking its steepest single-day drop since late September. Just the previous week, SoftBank had announced a substantial commitment of $19 billion to support Stargate, its joint data-centre venture with OpenAI.

Meanwhile, Tokyo Electron, a giant in chip-making equipment, saw its shares fall by 5%.

Markets that are heavily technology-based in Taiwan and South Korea were closed for the day.

European tech stocks, particularly those involved in semiconductor manufacturing like Dutch firm ASML, are expected to face pressure when the markets open, as the company relies on customers such as TSMC, Intel, and Samsung.

Nvidia, often viewed as a leading player in the AI landscape, has seen its stock price soar by 196% since the year began, vastly outperforming the Nasdaq’s 35% increase.

Concerns Over Capital Expenditures

While details about DeepSeek, the Hangzhou-based startup, remain limited, their AI assistant has quickly gained popularity, surpassing established competitors like ChatGPT to become the top-rated free application on Apple’s App Store in the United States as of Monday.

Researchers at DeepSeek noted in a recent paper that their DeepSeek-V3 model, which launched on January 10, utilizes Nvidia’s H800 chips for training, with total costs under $6 million.

It’s worth noting that H800 chips are not among the most advanced options available; they were initially designed to circumvent restrictions on sales to China and have subsequently been affected by U.S. sanctions.

In addition to chip producers, data centers and associated companies also felt the impact, as evidenced by the 7% decline in the shares of Malaysia’s YTL Power, reaching a two-month low.

“Investors are currently reassessing the capital expenditure strategies of major technology firms,” said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. He highlighted that market positions had become notably crowded.

It remains unclear, however, how DeepSeek developed its technology and the specifics of the hardware in use.

“There’s a growing unease that the perception of American tech as being the pinnacle of innovation, epitomized by companies like Nvidia and ChatGPT, may be undergoing a transformation,” remarked Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “Though such shifts may seem premature, they indicate changing dynamics in the global AI landscape.”

In China, market reactions were mixed; the index tracking AI-related stocks fell by 2.2%, while big data equities rose by 4%.

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