Chinese AI Model Raises Concerns for Chip Demand and Nasdaq Futures

Nasdaq futures plunged on Monday, with technology stocks in Japan also falling, as the rise of a Chinese AI model casts doubt on the profitability of the sector and its hefty chip demand. Nasdaq 100 futures shed 2.6%, while S&P 500 futures dropped 1.4% by mid-morning in Europe. Advantest, a supplier to Nvidia, saw its shares tumble 8.5% in Tokyo.

In Europe, Nvidia's Frankfurt-listed shares declined around 7%, and Tesla, Amazon, and Meta all fell over 2% in early trading. DeepSeek, a startup, has released a free assistant that reportedly uses inexpensive chips and minimal data, challenging the widespread belief that AI will drive demand for high-end chips and data centers.

"There's been a lot of hype in this sector, and now DeepSeek is giving investors an excuse to pull out," said Wong Kok Hoong, Maybank's head of equity sales trading. SoftBank Group, an AI-focused investor, plunged over 8%, its steepest one-day decline since September 30. Last week, it pledged $19 billion towards Stargate, a data center joint venture with OpenAI.

Tokyo Electron, a chipmaking equipment giant, dropped 5%. Tech-heavy exchanges in Taiwan and South Korea were closed. European tech stocks are expected to face pressure at the opening bell, particularly ASML, a Dutch chip equipment maker that supplies TSMC, Intel, and Samsung.

Nvidia, once the darling of the AI sector, has seen its shares soar by 196% since 2024, outpacing the Nasdaq's 35% gain.

CAPEX Costs in Question

Little is known about DeepSeek, the Hangzhou-based startup behind the game-changing AI assistant. However, its product has surpassed ChatGPT and become the top-rated free app on Apple's US App Store as of Monday.

DeepSeek researchers claim that the DeepSeek-V3 model, launched in January, was trained using Nvidia's H800 chips at a cost of under $6 million. H800 chips are not top-notch; they were initially produced as a lower-capability alternative to avoid US restrictions on sales to China.

Besides chipmakers, data centers and related companies also suffered setbacks on Monday. YTL Power, a Malaysian utility, saw its shares dip 7% in Kuala Lumpur, touching a two-month low.

"Investors are concerned about the capital expenditure plans of major tech firms," said Nick Ferres of Vantage Point Asset Management in Singapore. "There has been a lot of crowding in this space."

However, details on DeepSeek's development and hardware are still scarce. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, notes, "The idea that US technologies like Nvidia and ChatGPT are globally superior is being challenged, but it may be too early to draw definitive conclusions."

In China, the market response was mixed: an AI index CSI300 declined 2.2%, while big data stocks rose 4%.