Chinese artificial intelligence lab DeepSeek's new chatbot has put the U.S. stock market into panic mode.
Futures tracking the tech-heavy Nasdaq 100 index were plunging Monday as Silicon Valley heaped praise on R1, an AI model launched on Jan. 20.
DeepSeek topped the Apple App Store over the weekend, and R1 had already cracked the top 10 of the UC Berkeley leader board Chatbot Arena, a ranking of the top-performing AI assistants.
Investors' big worry was about costs. DeepSeek said it had spent just $5.6 million training R1, although that headline figure excludes research and development expenses. Last week, U.S. tech companies OpenAI and Oracle committed to pour hundreds of billions of dollars into the Trump administration's Stargate AI initiative.
"This is causing an existential crisis in the U.S. stock market...DeepSeek is a clear reminder that U.S. AI dominance cannot be taken for granted," Kathleen Brooks, research director for the online broker XTB, said.
DeepSeek's cheap model could fuel worries about the valuation of shares in the chip makers that have seen their earnings soar thanks to the AI spending boom. Nvidia stock tumbled 11.3%, Broadcom plunged 14%, and Advanced Micro Devices slipped 6.1 in Monday's premarket.
R1's rapid rise also poses questions for the Big Tech companies that have been dipping deep into their pockets to fund AI models of their own. Microsoft shares fell 6.4% and Google parent Alphabet were down 3.9% ahead of the opening bell.
The broader market was also suffering a DeepSeek dip. Contracts tied to the Nasdaq 100 dropped 4.5% Monday, and futures tracking the benchmark S&P 500 were down 2.5%.