US Stock Futures Tumble Amid Concerns Over Chinese AI Model

US stock index futures declined in early Asian trading on Monday over concerns that an advanced artificial intelligence (AI) model developed by China's DeepSeek could disrupt the technology market.

Key Highlights:

* S&P 500 futures dropped 1% as of 10:12 a.m. Hong Kong time.
* Nasdaq 100 contracts fell 1.9%, extending losses from Friday's cash trading session.
* Hong Kong stocks climbed, with the Hang Seng Tech Index rising 2% ahead of Lunar New Year holidays.

AI Model Raises Concerns:

DeepSeek's updated AI model, unveiled last week, reportedly rivals the technology developed by OpenAI. Its cost-effectiveness and compatibility with reduced-capability chips raise questions about the dominance of US tech firms like Nvidia Corp.

According to Nirgunan Tiruchelvam of Aletheia Capital, the DeepSeek product challenges the belief that Silicon Valley's significant investments in AI are the optimal approach.

Market Implications:

The decline in US futures comes amid a crucial week for earnings reports from tech giants like Microsoft Corp. and Apple Inc. Profit growth is anticipated to slow, and valuations remain elevated, raising concerns about the AI-driven rally in the sector.

Competition Intensifies:

China's AI advancements have been seen as lagging behind their US counterparts. However, using open-source technology, DeepSeek's model bypasses trade restrictions that have limited China's access to cutting-edge chips.

Charu Chanana of Saxo Markets notes that while Nvidia and other current leaders maintain a strong position, AI dominance is not guaranteed. DeepSeek's emergence signifies the escalation of competition, potentially leading to faster-evolving challengers that will test the established companies.

Earnings Impact:

This week's earnings reports will provide a critical test for the tech sector. Investors will assess the impact of AI competition and slowing profit growth on valuations.