Stock Markets Drop as Investors Worry About DeepSeek and China’s A.I. Advances

A jolt of panic hit big technology stocks on Monday, with investors rattled by fears that advances in artificial intelligence by Chinese upstarts could threaten the moneymaking power of tech giants in the United States, Europe and beyond.

The Chinese A.I. company DeepSeek has made waves by matching the abilities of cutting-edge chatbots while using a fraction of the specialized computer chips that leading A.I. companies rely on. That has prompted investors to rethink the large returns they are expecting on the heady valuations of chipmakers like Nvidia, whose equipment powers the most advanced A.I. systems, as well as the enormous investments that companies like Google, Meta and OpenAI are making to build their A.I. businesses.

U.S. markets tumbled at the open, with the S&P 500 slumping more than 2 percent and the tech-heavy Nasdaq dropping 3.5 percent. Tech stocks also dented markets in Europe and Japan.

The pain was concentrated at companies at the forefront of the A.I. boom, including the multitrillion-dollar behemoths that drove the largest back-to-back annual gains for U.S. markets since the 1990s. Investors have fretted about whether the rally has gone too far, leaving little room for error at the small group of tech firms that now dominates the market.

For those waiting for a something to shake the faith in tech valuations, DeepSeek could be the start a new phase in how investors think about A.I., said Steve Sosnick, chief strategist at Interactive Brokers. He called the latest reports of increased competition in the industry a “big slap in the face” for investors that could reset the way they calculate risk.

Nvidia was down about 13 percent in early trading, a move that erases hundreds of billions of dollars in market value. Other chipmakers like AMD and Arm, and semiconductor equipment specialists like ASML also recorded substantial declines. The emergence of DeepSeek, which unveiled its new system last month but grabbed the tech world’s attention with a research paper last week detailing how it built the technology, “serves as a reminder that competition in the global A.I. arena is intensifying, and Nvidia may not be in the pole position forever,” Charu Chanana, chief investment strategist at Saxo Bank, wrote in a research note.

Shares of Meta, which last week announced a big jump in its spending plans for data centers, the huge warehouses of computers that power artificial intelligence, fell about 3 percent. Microsoft, which has also bet heavily on A.I., fell 4 percent. Oracle, which is a partner in a joint venture with OpenAI and SoftBank unveiled at an event with President Trump last week, fell nearly 7 percent. SoftBank’s stock also shed more than 8 percent of its value in Tokyo.

The moves cast a cloud over the tech giants as Meta, Microsoft and others prepare to present their latest quarterly earnings this week. Looking past their bumper profits in the past, analysts could aim pointed questions at executives about financial prospects in the future under stiffer global competition.

(The New York Times has sued OpenAI and its partner, Microsoft, claiming copyright infringement of news content related to A.I. systems. The two tech companies have denied the suit’s claims.)

The turmoil also hit the stocks of utility companies that have opened new lines of business serving the voracious power needs of data centers. Constellation Energy fell more than 13 percent.

U.S. Treasury bonds rallied, as they often do when investors seek havens during times of turbulence.

Mr. Trump has promised to accelerate the production of American-made A.I. to compete against China for global leadership in the technology. On Thursday, he signed an executive order aimed at “removing barriers” to the development of artificial intelligence. As the U.S. government works to maintain the country’s lead in the A.I. race, it is trying to limit the number of powerful chips, like those made by Nvidia, that can be sold to China and other rivals.

While acknowledging the potential of DeepSeek’s systems, analysts at Bernstein noted that their “initial reaction does not include panic.” Any computing capacity freed up by more efficient A.I. systems would be absorbed by fast-growing demand, they said: “We are still going to need, and get, a lot of chips.”

Danielle Kaye contributed reporting.