Major technology stocks plunged in Monday’s pre-market trading after Chinese artificial intelligence startup DeepSeek unveiled an AI model that reportedly matches OpenAI‘s ChatGPT capabilities at a fraction of the cost, threatening U.S. technological leadership.

What Happened: NVIDIA Corp (NASDAQ:NVDA) led the decline, falling 8.15% to $131.00 in pre-market trading. Other chip manufacturers followed, with Broadcom Inc. (NASDAQ:AVGO) down 8.66%, Super Micro Computer Inc. (NASDAQ:SMCI) dropping 8.03%, and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) declining 7.66%.

Advanced Micro Devices Inc. (NASDAQ:AMD) shed 4.89%, while Micron Technology Inc. (NASDAQ:MU) lost 6.00%. Intel Corp (NASDAQ:INTC) and Qualcomm Inc. (NASDAQ:QCOM) showed relatively smaller declines of 2.45% and 2.28%, respectively.

The selloff extended to major tech companies, with Microsoft Corp (NASDAQ:MSFT) falling 3.30%, Meta Platforms Inc. (NASDAQ:META) down 3.22%, and Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) declining over 3%.

DeepSeek’s R1 language model, released as open-source last week, reportedly achieves performance comparable to OpenAI’s models while requiring significantly less computing power. The startup claims to use approximately 50,000 Nvidia H100 GPUs, raising questions about the necessity of massive GPU investments that have driven chip stocks’ valuations.

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Why It Matters: Scale AI CEO Alexandr Wang called DeepSeek “a wake-up call for America” on social media platform X, emphasizing the need for the U.S. to accelerate innovation while strengthening chip export controls.

According to The Kobeissi Letter, U.S. markets are set to erase over $1 trillion in market capitalization during Monday’s session, with Nasdaq 100 futures plunging 662.50 points or 3.2%, and S&P 500 futures dropping 1.9% as of early morning trading.

Chip Stocks Overnight Reaction to DeepSeek:

1. Arm, $ARM: -5.5%
2. Nvidia, $NVDA: -5.3%
3. Broadcom, $AVGO: -4.9%
4. Super Micro, $SMCI: -4.6%
5. Taiwan Semi, $TSM: -4.5%
6. Micron, $MU: -4.3%
7. Qualcomm, $QCOM: -2.8%
8. AMD, $AMD: -2.5%
9. Intel, $INTC: -2.0%

US markets are…

— The Kobeissi Letter (@KobeissiLetter) January 27, 2025

The development comes at a crucial time as markets await the Federal Reserve’s meeting this week and major earnings reports. DeepSeek’s breakthrough particularly threatens Nvidia’s market position, as the company’s chips have been considered essential for advanced AI development.

Adding to market pressure, billionaire investor Chamath Palihapitiya highlighted that DeepSeek has achieved step-by-step reasoning without requiring massive supervised datasets, potentially marking a significant advancement in AI technology.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image Via Shutterstock