Japanese technology stocks tumbled on Tuesday as a global market rout, triggered by the emergence of a low-cost Chinese artificial intelligence model, entered its second day. Investors reevaluated the sky-high valuations of AI leaders, leading to widespread selloffs.
Nvidia, the poster child of the AI boom, led the decline in U.S. markets, plummeting 17% on Monday and erasing a record $593 billion from its market value—the largest single-day loss for any company.
The selloff was spurred by DeepSeek, a Chinese startup that launched a free AI assistant last week. The company claims its model operates with significantly less data and at a fraction of the cost of current AI services. The development has drawn global attention, including praise from OpenAI CEO Sam Altman, who called it an “impressive model.”
“We will obviously deliver much better models, and it’s legit invigorating to have a new competitor!” Altman wrote on social media.
Global Ripple Effects
DeepSeek’s growing traction prompted investors to dump tech stocks worldwide, impacting markets from Tokyo to Amsterdam and Silicon Valley.
In Japan, Nvidia supplier Advantest slumped 10% on Tuesday after an earlier 9% drop. Tokyo Electron, a chip-making equipment manufacturer, declined 5.3%, while SoftBank Group fell 6%.
U.S. tech stocks also suffered sharp declines. Broadcom plunged 17.4%, Microsoft fell 2.1%, and Google parent Alphabet dropped 4.2%. The Philadelphia Semiconductor Index saw its steepest drop since March 2020, tumbling 9.2%. Tech-heavy markets in South Korea and Taiwan remained closed due to Lunar New Year holidays.
The selloff has also impacted data center-related firms, with Malaysia’s YTL Power falling 7.5% in its third consecutive session of steep losses.
High Valuations Under Scrutiny
The AI-fueled market rally over the past 18 months has driven massive capital inflows into tech equities, inflating valuations. The latest market correction highlights growing concerns over concentrated investor positioning.
“What makes Monday’s tech selloff so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said David Bahnsen, chief investment officer at The Bahnsen Group.
“The excessive weighting of these stocks in investor portfolios and major indices was a significant and underappreciated risk.”
DeepSeek’s Challenge to Nvidia
Hangzhou-based DeepSeek remains relatively unknown, but its disruptive potential is evident. Controlled by Liang Wenfeng, co-founder of hedge fund High-Flyer, the startup has developed its DeepSeek-V3 model using Nvidia’s H800 chips for training—at a reported cost of under $6 million.
Charu Chanana, chief investment strategist at Saxo, noted that DeepSeek’s success challenges the massive investments U.S. tech firms have made in high-cost AI infrastructure.
“By developing cutting-edge AI models with more cost-efficient hardware, DeepSeek threatens Nvidia’s dominance and raises questions about long-term AI leadership,” Chanana said.
As markets brace for upcoming tech earnings reports, investor focus will turn to how industry leaders respond to these mounting competitive pressures.
