Global stock markets are experiencing sharp divergences as Chinese artificial intelligence (AI) start-up DeepSeek shakes up the tech landscape with its revolutionary product launch, as stated in a report by MoneyControl.  

United States stock futures took a significant hit, particularly driven by steep losses in Nasdaq contracts, while Japanese chipmaker stocks saw heavy selling. In contrast, Chinese and Hong Kong tech stocks are surging, fueled by optimism surrounding DeepSeek’s rapid ascent, sparking fresh concerns over the future dominance of US tech giants like Nvidia and Google.

US futures slide, Japan shares drop, China markets rise

During Monday's Asian trading hours, US stock index futures dropped, with S&P 500 futures dropping as much as one per cent and Nasdaq 100 futures falling nearly 1.9 per cent. 

The sell-off signals growing investor unease that DeepSeek’s cost-effective AI model, developed using lower-capability chips, could disrupt the business models of US tech heavyweights like Nvidia, OpenAI, and Google, according to Bloomberg.

Meanwhile, Asian markets reacted with mixed sentiment. Hong Kong's Hang Seng Tech Index surged 2 per cent, while Japan’s Nikkei 225 futures fell by 0.6 per cent. Shares of Advantest Corp, a key supplier to Nvidia, dropped 8.6 per cent in Tokyo, while SoftBank Group Corp, which saw a surge last week in AI infrastructure plans, dropped 5.4 per cent.

DeepSeek’s groundbreaking AI model: Low-cost, high impact

According to Forbes, DeepSeek’s AI model has sent ripples through Silicon Valley, developed at a fraction of the cost — just $5.6 million. Unlike its US counterparts, DeepSeek leverages open-source technology and lower-end chips, bypassing the need for expensive, high-end hardware restricted by US export controls.

Founded in 2023 by Liang Wenfeng, an industry veteran, DeepSeek is funded exclusively by Wenfeng’s quantitative hedge fund, High-Flyer. This unique structure allows DeepSeek to prioritise long-term research without the influence of external investors.

Global implications: US tech dominance challenged

“DeepSeek’s release is deeply problematic for the thesis that massive capital expenditure is necessary for AI dominance,” said Nirgunan Tiruchelvam, head of consumer and internet at Aletheia Capital, in an interview with Bloomberg. Charu Chanana, chief investment strategist at Saxo Markets, added, “While Nvidia has a strong foothold, DeepSeek's emergence underscores that AI dominance cannot be taken for granted.”

The global ramifications are evident, with Chinese AI-linked stocks rising in response to DeepSeek’s success. The Shanghai Composite increased 0.2 per cent, and Hong Kong’s Hang Seng rose 0.7 per cent. 

On the other hand, chipmakers in Japan, like Advantest and Disco Corp, suffered considerable losses due to fears of reduced demand for premium AI chips.

Although DeepSeek’s innovative AI model has upended market expectations, the company still faces challenges in competing with US tech giants. Forbes reported that DeepSeek suffers from a significant computational disadvantage, worsened by US export restrictions on advanced chips. Overcoming this gap will be crucial for the company to scale its operations and compete internationally.

The future for US tech

The timing of DeepSeek’s entry into the market adds more pressure to US tech firms, many of which are set to report earnings this week. 

Analysts expect profit growth for firms like Apple and Microsoft to slow, which will likely intensify concerns about inflated valuations in the AI sector.

Kyle Rodda, senior market analyst at Capital.com, told Bloomberg, “The proverbial arms race in AI investment has taken a very interesting turn. China’s advancements will undoubtedly catch the ire of the Trump administration, raising geopolitical risks for US firms.”