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 sky-high valuations for companies like Nvidia Corp. Nvidia has led the global AI stock boom as its chips have been seen as essential to the technology.

“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.”

Nasdaq 100 futures tumbled nearly 2.5%, while contracts on the S&P 500 fell 1.4%. The moves represent continued losses from Friday’s cash session, as U.S. shares cooled after gains earlier in the week as President Donald Trump took office.

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 user’s 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. Nvidia shares were more than 5% lower on the alternative trading system Blue Ocean as of 1:20 p.m. in Hong Kong, according to Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities. 

Nvidia supplier Advantest Corp., slid as much as 8.6% in Tokyo. Data center investor Mapletree Industrial Trust fell 3.6% in Singapore. Markets were closed for holidays in Taiwan and South Korea.

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 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 U.S. 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.”