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Asian technology stocks fell on Monday amid concerns over global investment in artificial intelligence and the impact of Chinese startup DeepSeek.

Japanese chip companies Disco Corp and Advantest, an Nvidia partner, fell 2.9 percent and 8.1 percent respectively, while top Chinese chipmaker SMIC fell 2.5 percent. Overnight trading in the US showed that AI bellwether Nvidia is poised to open on Friday.

The declines come as markets thaw unexpected development of DeepSeekwhich last week released its R1 – a rival to OpenAI’s ChatGPT generative AI model – which casts doubt on the huge costs of AI capex in Silicon Valley and the sustainability of the US technical side of artificial intelligence.

“DeepSeek R1 is the Sputnik era of AI,” venture capital investor Marc Andreessen wrote on social media site X, comparing the release of the wake-up call to the Soviet Union’s success in putting the first satellite into orbit. .

DeepSeek hit the top of the US App Store download charts on Monday. The small startup claims to be building competitive models on a bootstrapped budget, causing industry insiders to question whether it should pour in tens of billions of dollars to build AI chip clusters for large language model training.

“It seems that there is a little truth that China is not sitting idle, even though these tariffs and investment restrictions on tech companies are put in place”, said Mitul Kotecha, head of EM macro and FX at Barclays.

“The fact that they are able to achieve high-end tech has taken many people by surprise . . . this seems to be driving the change in sentiment today.”

Hong Kong’s Hang Seng index rose 1.1 percent at midday on Monday, led by higher Chinese technology companies listed in the territory including Tencent and Alibaba. Chinese AI company iFlytek rose 2.4 percent.

Traders in Tokyo said Monday’s trading was tightly focused on stocks such as Tokyo Electron and Fujikura, which have surged in recent months due to their high exposure to AI investment.

“It’s DeepSeek for sure,” said a Tokyo-based fund manager on the sudden decline in Japanese tech shares, adding that the market is changing the idea that spending on AI hardware — a theme that benefited some companies in Japan – may be a lower than the current estimate.

Furukawa Electric, which makes wire cables for data centers, has seen particularly sharp gains since November, but its shares fell more than 9 percent on Monday, making it the biggest percentage loss which underperformed the benchmark Nikkei 225 Average.

A trader at one of Japan’s biggest brokerages said it was hard to say how long the pain would last, and whether it was the start of a bigger sell-off.

Tokyo markets are expected to follow those in the US when the latter open later in the day, the person said, but they added that some clients are using the DeepSeek news as an excuse to lock up earnings on stocks that have performed well since the beginning of the year.

Some noted that the sell-off in large Japanese technology stocks led to broader losses in Japanese stocks. The Topix rose on Monday morning, while the market reacted to last week’s 0.25 percent increase in interest of the Bank of Japan.

Shares in Japan’s three biggest banks – MUFG, SMFG and Mizuho – all rose about 2 percent on expectations that interest rate hikes would generate stronger domestic earnings.