Buzz grew over the weekend about DeepSeek’s latest AI model being cost-effective while running on less-advanced chips, casting doubt on the validity of the rich valuations for companies like Nvidia Corp., which has led the global AI stock boom as its chips have been seen as essential to the technology. Shares of the Santa Clara, California-based firm slid 10% in premarket trading on Monday. 

Nasdaq 100 futures tumbled 3.4%, while contracts on the S&P 500 fell 2% as of 5 a.m. in New York. In Europe, tech stocks led market losses, with shares of chip equipment maker ASML Holding NV down 11%. The Cboe Volatility Index, known as the VIX, spiked higher. The Nasdaq 100 and Europe’s Stoxx 600 technology sub-index were together set for a market capitalization wipeout of roughly $1 trillion, if the losses hold.

“DeepSeek shows that it is possible to develop powerful AI models that cost less,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”

Roughly 200,000 Nasdaq 100 futures contracts changed hands by 4:45 a.m. New York time, about four times more than the 30-day average for this time of day, according to data compiled by Bloomberg.

The AI model from DeepSeek — founded by quant fund chief Liang Wenfeng — is widely seen as competitive with OpenAI and Meta Platforms Inc.’s latest offerings. Lauded by investor Marc Andreessen as “one of the most amazing and impressive breakthroughs,” DeepSeek’s app shows its work and reasoning as it addresses a user’s written query or prompt. Released last week, the product is now at the top of Apple Inc.’s App Store rankings, with users praising its transparency.

Chinese AI-related stocks reacted positively, with mainland-listed Merit Interactive Co. among those surging by their daily limits. Merit is among those with the clearest links to DeepSeek after stating in an earlier filing that it had incorporated the homegrown AI firm’s model into marketing. In Hong Kong, the Hang Seng Tech Index climbed as much as 2% ahead of Lunar New Year holidays this week.

AI trades slumped elsewhere as investors rethought assumptions on computing power and energy. Siemens Energy AG, one of the few AI winners in Europe, slid 20%.

The DeepSeek product “is deeply problematic for the thesis that the significant capital expenditure and operating expenses that Silicon Valley has incurred is the most appropriate way to approach the AI trend,’ said Nirgunan Tiruchelvam, head of consumer and internet at Singapore-based Aletheia Capital. “It calls into question the massive resources that have been dedicated to AI.”

The decline in Nasdaq futures comes at the start of a big week for earnings from major tech companies including Apple and Microsoft Corp. Profit growth is expected to have slowed while valuations remain inflated, once again causing concern over the large AI-driven rally in the sector.

The Nasdaq 100 is trading at 27 times estimated forward earnings, compared with its three-year average of 24 times. Nvidia is at 33 times, though that’s slightly down from its three-year average.

The DeepSeek release raises new doubts, challenging the notion that China’s AI technology is years behind US counterparts. Washington’s trade restrictions had kept the most cutting-edge chips out of China’s hands, but DeepSeek’s model was built using open source technology that is easy to access.

“While current leaders like Nvidia have a strong foothold, it is a reminder that AI dominance cannot be taken for granted,” said Charu Chanana, chief investment strategist at Saxo Markets. “The emergence of China’s DeepSeek indicates that competition is intensifying, and although it may not pose a significant threat now, future competitors will evolve faster and challenge the established companies more quickly. Earnings this week will be a huge test.”