US tech stocks took a nosedive Monday morning after a jaw-dropping announcement from a Chinese AI company, DeepSeek, shook confidence in America’s tech leadership. The startup, just a year old, unveiled an AI model called R1 that rivals popular tools like ChatGPT—but at a fraction of the cost. While US giants like OpenAI and Google spend billions on AI development, DeepSeek claims it trained its model for a mere $5.6 million.

This revelation sent shockwaves through the market. Meta, for instance, plans to spend $65 billion on AI this year alone. Even Sam Altman, OpenAI’s CEO, has warned that the industry needs trillions in investment to keep up with demand for advanced chips. DeepSeek’s breakthrough, achieved with less powerful hardware, has left experts stunned.

The impact was immediate. Nvidia, a key player in AI chips, saw its stock drop 12% before the market even opened. Other tech heavyweights like Meta, Alphabet, and Oracle also took a hit. The broader market felt the ripple effect, with the S&P 500 and Nasdaq futures pointing to significant losses.

Some analysts believe the selloff might be an overreaction. While DeepSeek’s achievement is impressive, it’s unclear if it can truly challenge the dominance of US tech giants. Still, the news has investors questioning whether America’s massive spending on AI will pay off—or if it’s just overspending.

As tech companies prepare to report earnings this week, the market could see more turbulence. For now, DeepSeek’s breakthrough has sparked a race to see how Western players will respond. Whether this is a temporary setback or a sign of shifting power in the AI world remains to be seen.

One thing’s clear: the AI race just got a lot more interesting.