DeepSeek, from China, shakes up the AI ​​market.

Reuters - Nasdaq futures fell and technology stocks in Japan retreated on Monday (27), as the growing popularity of a low-cost artificial intelligence model developed in China shook investor confidence in the profitability of the AI ​​sector and its voracious demand for high-tech chips.

Nasdaq 100 futures fell 2,6% and S&P 500 futures retreated 1,4% in morning trading in Europe. Shares of Nvidia (NVDA.O) and supplier Advantest (6857.T) fell 8,5% in Tokyo. Nvidia shares traded in Frankfurt fell about 7%, while Tesla, Amazon and Meta shares fell more than 2% in early European trading.

The startup DeepSeek has launched a free assistant that claims to use lower-cost chips and less data, challenging a widespread belief in the financial market that AI would drive demand throughout the supply chain, from chip manufacturers to data centers.

"It's a case of an oversupplied market, and now DeepSeek is giving investors and market operators a reason to unwind their positions," said Wong Kok Hoong, head of equity sales at Maybank. Shares of SoftBank Group (9984.T), an investor in AI-focused startups, fell more than 8%, heading for their biggest daily drop since September 30. Last week, the company announced a $19 billion commitment to fund Stargate, a data center joint venture with OpenAI.

The giant chip manufacturing equipment company Tokyo Electron (8035.T) fell 5%. Markets with high concentrations in technology, such as Taiwan and South Korea, were closed.

European technology stocks (.SX8P), especially those of Dutch chip equipment manufacturer ASML (ASML.AS), which has clients such as TSMC (2330.TW), Intel (INTC.O) and Samsung (005930.KS), are likely to face pressure when the market opens.

Shares of Nvidia, considered a symbol of the AI ​​sector, have risen 196% since the beginning of 2024, surpassing the 35% gain of the Nasdaq (.IXIC).

Capex in question - Little is known about the small Hangzhou-based startup behind DeepSeek, but its assistant surpassed ChatGPT and became the highest-rated free app on Apple's App Store in the United States on Monday.

Researchers at DeepSeek wrote in a paper last month that the DeepSeek-V3 model, released on January 10, used Nvidia's H800 chips for training, at a cost of less than $6 million.

The H800 chips are not cutting-edge. Initially developed as a limited version to circumvent sales restrictions to China, these chips were later banned by US sanctions.

In addition to chips, data centers and related companies were also impacted on Monday. Malaysian utilities conglomerate YTL Power (YTLP.KL) fell 7% in Kuala Lumpur, hitting its lowest level in two months.

"The market is questioning the capital spending of large technology companies," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noting that positions were overcrowded.

There are still many uncertainties regarding the details of DeepSeek's development and the hardware it uses.

"The idea that the most advanced technologies in the United States, such as Nvidia and ChatGPT, are the most superior globally, may begin to be questioned," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. "I think it might be a bit premature."

The market reaction in China was mixed, with the CSI300 AI stock index (.CSI930713) falling 2,2%, while big data stocks (.CSI930745) rose 4%.