Nvidia, a US chip maker, saw a big drop in its stock price on Monday after a new Chinese AI model emerged that could challenge America’s lead in the growing AI industry.The chatbot, created by DeepSeek, a startup from Hangzhou, China, is said to be as powerful as the top US AI models but was developed for just a fraction of the cost.

Nvidia, whose chips are crucial for AI, lost nearly 17% of its stock value, losing about $600 billion in market value. The Nasdaq, which tracks tech stocks, dropped by more than 3%.DeepSeek, whose chatbot became the top free app on Apple's US App Store, said it spent only $5.6 million to develop its AI, while US companies have invested billions.

US "tech dominance is being challenged by China," said Kathleen Brooks, research director at trading platform XTB. She added that the key question now is whether China can develop AI faster, cheaper, and more efficiently than the US, and potentially win the AI race.

Art Hogan, chief market strategist at B. Riley Wealth, described the market's reaction on Monday as "shoot first, ask questions later," pointing out that many are sceptical about the claims made by the Chinese company. "People are trying to figure out 'Can this be trusted?' and 'What does this mean?'" Hogan said.

As DeepSeek shook the markets, the Chinese startup announced on Monday that it was limiting new user registrations due to "large-scale malicious" cyberattacks targeting its services.This week, major tech companies like Meta and Microsoft are set to release their earnings, presenting an opportunity to comment on the rise of DeepSeek.

Shares of US chip-maker Broadcom dropped by 17.4%, while Dutch company ASML, which manufactures semiconductor equipment, saw its stock fall 6.7%.Constellation Energy, which plans to expand energy capacity for AI, saw its stock plummet by more than 20%. The S&P 500, a key US stock index, dropped by 1.5%, while the Dow Jones gained 0.7%.

In Europe, stock markets in Frankfurt and Paris ended in the red, while London remained flat.Just a week after his inauguration, Trump unveiled a $500 billion initiative to build AI infrastructure in the US, led by Japanese firm SoftBank and ChatGPT-maker OpenAI.

In response, SoftBank's stock fell over 8% in Tokyo, while Japanese semiconductor companies Advantest and Tokyo Electron also experienced significant declines.

What is DeepSeek AI ?

DeepSeek is an AI platform known for its advanced models used in natural language processing, data analysis, and machine learning applications. Its models, like DeepSeek-V3 and DeepSeek-R1, are designed to be efficient, affordable, and capable of performing complex tasks with high accuracy.

The buzz around DeepSeek started after the release of OpenAI's ChatGPT in late 2022, which sparked competition among Chinese tech companies to create their AI-powered chatbots. Although Baidu, the Chinese search engine giant, launched its version of ChatGPT, many in China were disappointed by the performance gap between US and Chinese AI models. DeepSeek, however, has caught attention for offering a more cost-effective and powerful alternative.