Nasdaq futures slumped and technology shares slid in Japan on Monday as surging popularity of a Chinese discount artificial intelligence model wobbled investors’ faith in the profitability of AI and the sector’s voracious demand for high-tech chips.

Nasdaq 100 futures were down 2.6% and S&P 500 futures slipped 1.4% by the European morning, and shares in Nvidia supplier Advantest fell 8.5% in Tokyo.

Frankfurt-listed shares of Nvidia slipped about 7%, while those of Tesla , Amazon and Meta fell more than 2% in early European trading.

Startup DeepSeek has rolled out a free assistant it says uses lower-cost chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centres.

“It’s a case of a crowded trade, and now DeepSeek is giving a reason for investors and traders to unwind,” said Wong Kok Hoong, head of equity sales trading at Maybank. AI-focused startup investor SoftBank Group (9984.T), opens new tab slid more than 8%, on course for its biggest one-day fall since Sept. 30. Last week it announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI.

Chip-making equipment giant Tokyo Electron fell 5%.

Tech-heavy markets in Taiwan and South Korea were closed.

European tech stocks especially Dutch computer chip equipment maker ASML which counts Taiwan’s TSMC, Intel and Samsung as its customers, will likely face pressure at the open.

Shares of Nvidia, the poster child of AI, have risen 196% since the start of 2024, outperforming the 35% gain in the Nasdaq.

CAPEX IN QUESTION

Little is known about the small Hangzhou startup behind DeepSeek, but its assistant leapfrogged rival ChatGPT to become the top-rated free application on Apple’s App Store in the United States on Monday.

DeepSeek researchers wrote in a paper last month that the DeepSeek-V3 model, launched on Jan. 10, used Nvidia’s H800 chips for training, spending less than $6 million.

H800 chips are not top-of-the-line. Initially developed as a reduced-capability product to get around restrictions on sales to China, they were subsequently banned by US sanctions.