Tech Stocks Reduce Early Losses, Remain Firmly Red as Chinese Firm Shakes AI Establishment

Tech stocks worldwide have taken a huge pullback following the announcement from Chinese AI startup DeepSeek. The company revealed a new chatbot that has rapidly risen to the top of the Apple Store’s download charts, demonstrating competitive performance against major US tech companies, while maintaining cost efficiency.

The Nasdaq 100 is trading down 2.62% in early trading, paring gains that looked to be twice as bad in the pre-market session.

Major tech firms in the United States and Japan have witnessed their share prices fall. Nvidia (NASDAQ: NVDA), a key player in the tech industry, experienced considerable declines, and remains down more than 11%. Japanese tech giant SoftBank suffered more than an 8% loss overnight due to the announcement.

DeepSeek's chatbot was said to be developed at a cost of just $5.6 million (£4.5 million), which is significantly less than the billions of dollars invested by its US counterparts. This efficient cost structure is largely attributed to the advanced chips utilized by DeepSeek, as noted by William Beavington from Jefferies.

Industry leaders have noted the impact of DeepSeek's entry into the market. Venture capitalist Marc Andreessen described the event as “AI's Sputnik moment,” suggesting a major shift in technological progress reminiscent of historic space advancements.

DeepSeek operates out of Hangzhou, China, a city recognised for its dense concentration of technology firms, providing a favorable environment for innovation and development.

With its cost-effective approach and rapid market penetration, DeepSeek could pose a formidable challenge to established players in the AI sector globally. This development will take some time to fully digest, and with key names in the Magnificent 7 reporting this week, there could be more volatility to come.