Japan’s chip-related stocks fell Monday as Chinese AI startup DeepSeek challenges America’s global leadership in artificial intelligence, threatening Asian tech companies part of the U.S. AI value chain.

Shares of semiconductor testing equipment supplier Advantest, which counts Nvidia among its clients, fell 7.99%. Tokyo Electron dropped 3.94%, while Renesas Electronics fell 0.4%.

Softbank Group, which owns chip designer Arm, slid 5.4% after trading higher last week on CEO Masayoshi Son’s plans to invest $100 billion in the U.S.

“Japan’s chip stocks are selling off sharply on the DeepSeek concerns and we are seeing a rotation out of growth names into value,” Andrew Jackson, head of equity strategy at ORTUS Advisors told CNBC via email.

Data center-related shares that were boosted by higher technology infrastructure spending will also be hit, he added.

Shares of wire and cable firms Furukawa and Fujikura also fell 9.8% and 8.16%, respectively.

The speed and focus of China’s progress on chips is putting Japan’s own ambitions into question, said veteran investor Jesper Koll.

“We know Japanese chipmakers are potentially world class, but we also know that their ability to produce at-scale is limited; and it is right to worry that their speed of execution may run behind China’s newfound will to win,” Koll told CNBC.

DeepSeek launched a free, open-source large-language model in late December, claiming it was developed in just two months at a cost of under $6 million. Last week, the lab launched r1, a reasoning model that surpassed OpenAI’s newest o1 in several third-party tests.

The fresh developments triggered concerns about the large amounts of money big tech companies have been investing in AI models and data centers. DeepSeek also had to contend with the tough semiconductor restrictions the U.S. government placed on China, limiting access to advanced chips.

“While it remains to be seen if DeepSeek will prove to be a viable, cheaper alternative in the long term, initial worries are centered on whether U.S. tech giants’ pricing power are being threatened and if their massive AI spending need re-evaluation,” IG’s market strategist Junrong Yeap said in a note.

DeepSeek has become the most downloaded free app on Apple’s iPhone.

The fall in Japanese chip shares comes as Nasdaq futures dropped 1.62% during Asia trading hours.

“Judging from the move in Nasdaq futures we may be in for a rough ride tonight in the U.S. also,” Jackson added. 

“With a model this cheap, many new products and experiences can now emerge trying to win the hearts and minds of the global populace,” said Chamath Palihapitiya, Canadian-American venture capitalist and CEO of Social Capital said on social media platform X, who sees volatility in the stock market as capital markets will seek to re-price the values of the “Magnificent 7” companies.

“Nvidia is the most at risk for obvious reasons,” he said.