Japan’s semiconductor-related stocks saw sharp declines on Monday following concerns over Chinese AI startup DeepSeek’s rapid advancements, which are perceived as a challenge to the United States’ global dominance in artificial intelligence. The fallout has raised alarm bells for Asian tech firms closely tied to the U.S. AI value chain.
Key Stock Declines
Shares of several prominent Japanese tech firms plummeted as investors reevaluated the implications of DeepSeek’s progress. Semiconductor testing equipment supplier Advantest, a significant supplier for Nvidia, fell by 8.6%. Similarly, Tokyo Electron saw a 4.9% drop, and Renesas Electronics slid 1.24%.
Adding to the losses, SoftBank Group, the owner of chip designer Arm, experienced an 8.3% decline after previously climbing on news of CEO Masayoshi Son’s plans to invest $100 billion in the U.S.
Wire and cable companies were also hit hard, with Furukawa and Fujikura dropping 11.27% and 10.66%, respectively. Analysts pointed to a broader rotation out of growth-oriented names into value stocks, underscoring the uncertainty gripping the market.
DeepSeek: Disrupting the AI Landscape
DeepSeek is a Chinese AI startup that has recently shaken the industry with its ambitious developments. In December, the company launched a free, open-source large language model, claiming it was built in just two months at a cost of under $6 million. More recently, it unveiled “r1,” a reasoning model that reportedly outperformed OpenAI’s latest “o1” in third-party tests.
The startup’s achievements have raised questions about the vast resources and investments being poured into AI by major tech companies. According to market strategist Junrong Yeap of IG, “Initial worries are centered on whether U.S. tech giants’ pricing power is being threatened and if their massive AI spending needs re-evaluation.”
DeepSeek’s cost-effective approach could make AI development more accessible, challenging the dominance of established players like Nvidia, which supplies advanced chips for AI systems. Venture capitalist Chamath Palihapitiya has also noted that Nvidia is particularly at risk, given its reliance on high-margin AI hardware.
Impact on Japanese Technology
Japan’s semiconductor and tech sectors, which are closely aligned with U.S. AI advancements, face a precarious situation. Veteran investor Jesper Koll emphasized that while Japanese chipmakers have the potential to be world-class, they lack the scale and speed to compete effectively with China’s newfound determination.
“The speed and focus of China’s progress on chips is putting Japan’s own ambitions into question,” Koll. “It is right to worry that their speed of execution may run behind China’s newfound will to win.”
Data center-related stocks, which have benefited from increased technology infrastructure spending, are now also under pressure. Analysts are closely watching how these developments could impact the broader tech ecosystem in Asia.
Global Market Implications
The fallout isn’t limited to Japan. Nasdaq futures fell 1.62% during Asian trading hours, signaling potential volatility in U.S. markets. Andrew Jackson, head of equity strategy at ORTUS Advisors, warned of a “rough ride” in U.S. markets as investors digest the implications of DeepSeek’s advancements.
The uncertainty is further compounded by U.S. semiconductor restrictions on China, which aim to limit access to advanced chips. While these restrictions have slowed Chinese AI development in the past, DeepSeek’s recent progress suggests that innovative approaches may allow Chinese firms to circumvent some of these limitations.
The Road Ahead
DeepSeek’s disruptive potential has sparked a broader debate about the future of AI development and the competitive landscape. With its free, open-source model gaining traction—it has already become the most downloaded app on Apple’s iPhone—the startup is demonstrating how cost-effective AI solutions could democratize the industry.
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