Stock markets fell sharply on Monday, dragged down by fears that advances in artificial intelligence by Chinese upstarts could threaten the moneymaking power of American technology giants.

The Chinese AI company DeepSeek has made waves by matching the capabilities of cutting-edge chatbots while using a fraction of the specialised computer chips that leading AI companies rely on.

That has made investors rethink the large returns they are expecting on the heady valuations of chipmakers like Nvidia, whose equipment powers the most advanced AI systems, as well as the enormous investments that companies like Google, Meta and OpenAI are making to build their AI businesses.

Premarket trading implied steep declines for U.S. markets when they open, with futures for the S&P 500 slumping more than 2 per cent and the tech-heavy Nasdaq dropping about 4 per cent. Tech stocks also dragged down markets in Europe and Japan.

The pain was concentrated at companies at the forefront of the AI boom, including the multitrillion-dollar behemoths that drove the largest back-to-back annual gains for US markets since the 1990s. Nvidia was down more than 5 per cent in premarket trading, a move that erases more than $100 billion in market value. Other chipmakers like AMD and semiconductor equipment specialists like ASML also recorded substantial declines.

“Even if DeepSeek does not maintain its current level of popularity, this development serves as a reminder that competition in the global AI arena is intensifying, and Nvidia may not be in the pole position forever,” Charu Chanana, chief investment strategist at Saxo Bank, wrote in a research note.

Shares of Meta, which last week announced a big jump in its spending plans for data centres, the huge warehouses of computers that power artificial intelligence, fell more than 3 per cent in premarket trading. Microsoft, which has also bet heavily on AI, fell nearly 5 per cent premarket.

Oracle, which is a partner in a joint venture with OpenAI and SoftBank unveiled at an event with President Donald Trump last week, fell more than 8 per cent. SoftBank’s stock also shed more than 8 per cent of its value in Tokyo.

The moves cast a cloud over the tech giants as Meta, Microsoft and others prepare to present their latest quarterly earnings this week. Looking past their bumper profits in the past, analysts could aim pointed questions at executives about financial prospects in the future under stiffer global competition. (The New York Times has sued OpenAI and its partner, Microsoft, claiming copyright infringement of news content related to AI systems. The two tech companies have denied the suit’s claims).

The turmoil also hit the stocks of utility companies that have opened new lines of business serving the voracious power needs of data centres.

Constellation Energy fell more than 10 per cent in premarket trading. Trump has promised to accelerate the production of US-made AI to compete against China for global leadership in the technology.

On Thursday, he signed an executive order aimed at “removing barriers” to the development of artificial intelligence.

As the US government works to maintain the country’s lead in the AI race, it is trying to limit the number of powerful chips, like those made by Nvidia, that can be sold to China and other rivals.

While acknowledging the potential of DeepSeek’s systems, analysts at Bernstein noted that their “initial reaction does not include panic.” Any computing capacity freed up by more efficient AI systems would be absorbed by fast-growing demand, they said: “We are still going to need, and get, a lot of chips.”