Tech Selloff Extends to Japan as DeepSeek Puts Focus on Costs

Technology shares in Japan fell on Tuesday as a global selloff of artificial intelligence stocks continued after the shock news of a low-cost but high quality AI model created by a little-known firm China.

The news about Chinese startup DeepSeek caused investors to doubt and question the high valuations of US models seen as leading the way in the AI sector.

Shares of Nvidia, the poster child of the AI boom in recent years, dragged US stocks lower, sinking 17% on Monday and wiping $593 billion from the chipmaker’s market value, a record one-day loss for any company.

ALSO SEE: ‘AI Breakthrough’ by China’s DeepSeek Rocks US Tech Giants

It all stemmed from a free AI assistant launched by Chinese startup DeepSeek last week that the firm said uses less data, allegedly at a fraction of the cost of services available currently. The firm garnered significant attention worldwide including praise from OpenAI CEO Sam Altman, who called it an “impressive model”.

“We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!,” Altman, the head of the AI firm behind ChatGPT, said in a social media post.

The launch and increasing popularity of DeepSeek spurred investors to dump tech stocks globally, with ripples felt from Amsterdam to Silicon Valley and Tokyo.

In Japan, chip-testing equipment maker Advantest, a supplier to Nvidia, lost 10% on Tuesday after diving nearly 9% on Monday. Chip-making equipment maker Tokyo Electron fell 5.3%, while technology start-up investor SoftBank Group was 6% lower.

Over in the US, Broadcom finished down 17.4%, followed by ChatGPT backer Microsoft which fell 2.1% and then Google parent Alphabet which ended down 4.2%.

The Philadelphia semiconductor index tumbled 9.2%, for its deepest percentage drop since March 2020. Tech heavy South Korean and Taiwan markets are closed for Lunar New Year.

‘Excessive tech weighting and under-appreciated risk’

The selloff, which has been put at about $1 trillion overall, has brought into the spotlight the crowded positioning among investors as well as the extremely high valuation of some of these firms.

“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 these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indices was a significant and under-appreciated risk issue.”

The hype around AI has powered a huge flow of capital into equities in the last 18 months, inflating valuations and lifting stock markets to record highs.

Doubts over DeepSeek’s costs figure

It is not just the chipmakers and tech companies but companies focused on data centres also taking a hit, with Malaysia’s utility conglomerate YTL Power down 7.5% on Tuesday, its third session of steep loss.

Jun Rong Yeap, market strategist at IG, said there may be some “sell first, think later” thinking at play, with opinions divided on whether DeepSeek will eventually be the so-called game-changer that reshapes the US AI landscape.

“But if anything, market participants dislike uncertainties and are clearly unwilling to take the risks in the near term.”

Little is known about the Hangzhou startup behind DeepSeek, whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, records showed.

Its researchers wrote in a paper last month that DeepSeek-V3 model, launched on January 10, used Nvidia’s lower-capability H800 chips for training, at a cost of less than $6 million.

Bernstein analyst Stacy Rasgon and others have argued that DeepSeek’s training costs for its V3 model should be higher, as the $5.5 million cited by the startup allegedly only includes the amount spent on computing power, Reuters has said.

But Charu Chanana, chief investment strategist at Saxo, said the development serves as a reminder that competition in the global AI arena is intensifying and Nvidia may not be in pole position forever.

“By developing cutting-edge AI models with less advanced and more cost-efficient hardware, DeepSeek challenges the heavy investments US tech companies are pouring into high-cost AI infrastructure.”

Investor focus will now be on the flurry of tech earnings this week, with executives likely keen to calm frayed nerves.

With most of the American tech giants set to report results this week and the next, analysts and investors expect executives of the companies to offer more clarity on their strategy.

“(DeepSeek’s rise) puts into question whether the current pace of capex spend/technology upgrades is necessary. Commentary from US hyperscalers will be key this week to see if they remain aggressive with AI spend,” CFRA analyst Angelo Zino said.

“They will likely stress the need for greater computing power as we shift toward agentic AI and physical AI,” Zino added, referring to autonomous AI agents that require little human intervention for routine tasks, as well as robots and self-driving cars.