Chip Stocks Crash 20% Into Bear Market as China AI Shock Wipes Out $1 Trillion
Wall Street was hit by a double blow this week as semiconductor stocks plunged into a bear market, falling more than 20% from their peak, while a new Chinese artificial intelligence model sparked fears of a "DeepSeek moment" that could upend America's tech dominance [199049][199055].
The sell-off accelerated after a Chinese startup released an AI model that investors worry signals a sudden shift in global competition, echoing the market shock caused by DeepSeek earlier this year [199055]. The term "DeepSeek moment" refers to a sudden market shock caused by a Chinese AI breakthrough, and this week's decline dragged down major US indexes, closing the week in the red [199055].
The chip sector, once the market's biggest winner driven by AI optimism, has now fallen past the bear market threshold of a 20% drop from its recent peak [199049]. Analysts point to growing doubts about whether companies will keep pouring money into AI chips and data centers at the same pace, citing slowing demand and rising costs as key concerns [199049]. The Nasdaq composite index fell sharply, erasing its gains for the year as investors fled chip makers [198980][198955].
Adding to the pain, Netflix shares plunged more than 8% after the streaming giant warned of slower subscriber growth, sparking fears of broader weakness in the tech sector [198955][198963]. The dual shocks from chips and streaming have raised fears that the broader tech rally may be losing steam [198955].
The selloff marks a sharp reversal for an industry that had been a standout performer over the past year, ending a long rally built on AI optimism [199049].