By Kosaku Narioka, Ying Xian Wong and Stuart Condie

The slump in technology stocks continued into a second day in Asia after the emergence of Chinese artificial-intelligence startup DeepSeek triggered a selloff in AI-related stocks overnight, raising concerns about the potential demand for the most advanced chips and data centers.

DeepSeek announced it had trained high-performing AI models at a dramatically lower cost, without relying on the most advanced chips. Its models appear to be roughly on par with top U.S. rivals on certain AI benchmarks.

Regional tech stocks tumbled as SoftBank Group dropped 5.8% in Japan, and chip-testing-equipment maker Advantest plunged 12%. Australian industrial-property owner Goodman Group, which has heavily invested in data centers globally, fell 8.2% on Tuesday.

Nvidia, whose chips have been used to power many leading AI models, sank 17% on Monday, losing about $590 billion in market value in a single day.

IG market strategist Yeap Jun Rong suggested that there might be some "sell first, think later" sentiment, with opinions divided over whether DeepSeek will be a game-changer that reshapes the U.S. AI landscape.

Morningstar equity analyst Phelix Lee said that DeepSeek is likely to have minimal impact on the profitability of Taiwan Semiconductor Manufacturing Co., the world's largest contract-chip maker and a supplier to Nvidia.

Because TSMC's existing supply remains well short of demand, its factories are expected to run at full capacity even if companies pare their AI investments, he said.

Markets in Taiwan, China and South Korea were closed ahead of the Lunar New Year.

The rising prominence of DeepSeek highlights the strength of Chinese AI companies' capabilities, Daiwa Capital Markets analysts said in a note. This is likely to attract more investments into the China's AI industry, the analysts said.

The selloffs in Asian chip stocks followed strong gains last week after SoftBank Group and ChatGPT maker OpenAI announced plans to invest up to half a trillion dollars in AI infrastructure in the U.S.

DeepSeek's rise has also raised concerns among investors that demand for data centers and the energy needed to power computing might not be as strong as previously anticipated.

Data-center operator DigiCo Infrastructure REIT lost 12% and rival NextDC was 7.2% lower. Japan's Mitsubishi Heavy Industries, which makes gas turbines for power plants, was down 7.7%. In Malaysia, YTL Power International, a partner of Nvidia in AI infrastructure, shed 8.7%.

Malaysia has attracted significant foreign investment in data centers and AI from companies such as Microsoft, Alphabet's Google and ByteDance.

-- Fabiana Negrin Ochoa, Kimberley Kao and Amanda Lee contributed to this article.

Write to Kosaku Narioka at kosaku.narioka@wsj.com, Ying Xian Wong at yingxian.wong@wsj.com and Stuart Condie stuart.condie@wsj.com

(END) Dow Jones Newswires

January 28, 2025 01:57 ET (06:57 GMT)

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