Shares of Japan's chip-related companies experienced a significant downturn on Monday, driven by concerns over Chinese AI startup DeepSeek's potential challenge to U.S. dominance in artificial intelligence. Semiconductor testing equipment supplier Advantest saw its shares fall sharply by 7.99%. This drop comes as DeepSeek's newly launched, free, open-source large-language model begins to gain traction, creating ripples in the tech industry.
The large-language model, developed in just two months for under $6 million, has outperformed OpenAI's latest model, o1, in several third-party tests. Following its launch, the model has rapidly become the most downloaded free app on Apple's iPhone. Such developments have triggered apprehensions over the vast sums big tech companies are investing amid the AI race.
Nvidia, a major client of Advantest, finds itself particularly vulnerable. Andrew Jackson, head of equity strategy at ORTUS Advisors, highlighted the risk to Nvidia due to the emerging competition.
"Nvidia is the most at risk for obvious reasons," Jackson stated.
The impact of these developments extended beyond Advantest. Tokyo Electron and Renesas Electronics witnessed declines of 3.94% and 0.4%, respectively. Softbank Group, owning chip designer Arm, also saw a 5.4% fall after previously trading higher last week. This drop occurred as Nasdaq futures fell 1.62% during Asia trading hours, raising concerns about broader market volatility.
Chamath Palihapitiya, CEO of Social Capital, noted that the capital markets might react by re-pricing the values of major tech companies known as the "Magnificent 7."
"With a model this cheap, many new products and experiences can now emerge trying to win the hearts and minds of the global populace," said Palihapitiya.
Market strategists, such as IG's Junrong Yeap, pointed out the fears surrounding America's global leadership in AI potentially being challenged.
"The market is concerned about the potential challenge to America's global leadership in artificial intelligence," Yeap remarked.
Andrew Jackson added context to the situation by noting the market's shift from growth stocks to value stocks amidst DeepSeek-related worries.
"Japan's chip stocks are selling off sharply on the DeepSeek concerns and we are seeing a rotation out of growth names into value," Jackson explained.
The developments have not just sparked reactions in Asia but are expected to influence U.S. markets as well.
"Judging from the move in Nasdaq futures we may be in for a rough ride tonight in the U.S. also," Jackson cautioned.