US tech stocks took a nosedive Monday morning after a jaw-dropping announcement from a Chinese artificial intelligence company, DeepSeek, shook investor confidence in America’s tech supremacy. The one-year-old startup unveiled a new AI model, R1, that rivals popular tools like ChatGPT but costs a fraction to develop.

DeepSeek reportedly spent just $5.6 million training its latest AI model, a stark contrast to the billions US tech giants like OpenAI, Google, and Meta pour into their AI projects. This revelation sent shockwaves through the market, with major players like Nvidia, Meta, and Alphabet seeing sharp declines in premarket trading. Nvidia, a leading AI chip supplier, dropped 12%, while the broader S&P 500 and Nasdaq indexes were poised for significant losses.

What makes DeepSeek’s achievement even more surprising is that it was accomplished despite US restrictions on high-power AI chips to China. The company managed to create a cost-effective model using less advanced hardware, challenging the notion that American tech firms hold an unbeatable edge in AI.

The market reaction has been intense, with analysts suggesting investors are questioning whether US companies are overspending on AI development. “The DeepSeek rollout is making people rethink the US lead in AI and whether all that spending will pay off,” said one market expert.

This week’s tech earnings reports could add more fuel to the fire, potentially leading to further market turbulence. However, some experts believe the selloff might be an overreaction. While DeepSeek’s breakthrough is impressive, it’s unlikely to immediately dethrone established US tech giants.

As one strategist put it, “The race is on to see how Western companies respond. Markets were due for a pullback, and DeepSeek gave them the perfect excuse.” Time will tell if this Chinese AI upstart can truly challenge America’s tech dominance—or if this is just a temporary shake-up in the ongoing AI arms race.