Japanese technology firms tumbled after a sharp Wall Street sell-off, triggered by China’s DeepSeek chatbot shaking up the artificial intelligence sector and casting doubt on the massive investments made by U.S. tech giants.
The dollar rallied amid reports that Washington was considering universal tariffs on a range of goods, sparking renewed fears of a trade war.
In Tokyo, companies linked to artificial intelligence fell for a second consecutive day, mirroring a Wall Street rout in which Nvidia’s shares plunged 17%, erasing more than half a trillion dollars from its market capitalisation.
The sell-off was triggered by DeepSeek’s launch of its R1 chatbot, which reportedly rivals US AI leaders’ capabilities at a fraction of their investment costs.
Nvidia, a dominant player in AI, has seen its stock soar by approximately 1,900% over the past five years due to heavy investments in the sector.
However, DeepSeek’s announcement has raised concerns about the sustainability of such business models.
The news also followed former President Donald Trump’s announcement of a $500 billion initiative to bolster AI infrastructure in the United States.
Trump described the development as a “wake-up call” for US tech firms.
“Instead of spending billions and billions, you’ll spend less and, hopefully, achieve the same results,” he said. However, OpenAI CEO Sam Altman called DeepSeek’s chatbot “impressive.”
The Nasdaq dropped more than 3%, with the S&P 500 shedding over 1%. Broadcom, another US chipmaker, fell 17.4%.
The sell-off extended into Tokyo on Tuesday, with the Nikkei down 1.4%. AI-related stocks were particularly hard hit, with Advantest tumbling over 11%, Tokyo Electron dropping 5.7%, and Disco Corporation down nearly 3%. SoftBank, a key investor in Trump’s AI initiative, fell more than 5% after an 8% decline the previous day.
“The DeepSeek news has triggered a rethink of the AI revolution and one of the pillars of current US exceptionalism,” said Rodrigo Catril of National Australia Bank.
“If R1 lives up to its initial promise, the demand for sophisticated chips, data centre infrastructure, and energy may not be as substantial as initially projected.”
Asian markets were mixed during limited trading ahead of the Lunar New Year holiday. While Hong Kong, Singapore, and Mumbai posted gains, Sydney, Wellington, Manila, and Bangkok declined slightly. Shanghai, Jakarta, Seoul, and Taipei were closed.
The dollar gained strength following a report in the Financial Times that US Treasury Secretary Scott Bessent was considering universal tariffs starting at 2.5% and increasing incrementally each month, potentially reaching 20%.
The report followed a diplomatic spat between Trump and Colombia over deportation policies, during which Trump threatened a 25% tariff. Although Bogota relented, analysts noted the incident underscored Trump’s readiness to weaponise tariffs.
The dollar advanced against the yen, euro, and sterling, while the Mexican peso and South African rand both dropped more than 1%.
Investors are now looking ahead to the Federal Reserve’s policy meeting, hoping for clarity on its interest rate outlook in light of Trump’s tariff policies and broader economic plans.
