Japan’s stock market took a hit Tuesday as a sell-off in U.S. tech giants spilled over to Asia. The Nikkei 225, a key index for Japanese stocks, fell 1.4%, with SoftBank, a major player in the tech investment world, dropping around 5%. U.S.-listed chip designer Arm Holdings, which is mostly owned by SoftBank, also plummeted more than 10% on Monday.

The ripple effect started when DeepSeek, a little-known Chinese artificial intelligence startup, claimed it could match the capabilities of top-tier AI chatbots using fewer expensive chips. This announcement sparked worries about the high valuations of tech companies, especially those riding the AI wave.

While many Asian markets, including China and Taiwan, were closed for the Lunar New Year, Japan’s market felt the brunt of the tech sell-off. In the U.S., futures for the S&P 500 dipped slightly during Asian trading hours, after the index fell 1.5% on Monday. Nvidia, a leading chipmaker and part of the so-called “Magnificent Seven” tech companies, saw its shares stabilize after losing about $600 billion in market value the previous day.

Experts warn that the market’s heavy reliance on these tech giants could be risky. “While vulnerabilities were expected this year, developments like DeepSeek highlight the need for diversification beyond the Mag 7,” noted one analyst. With inflation and potential tariffs looming, investors are reevaluating their optimism about an uninterrupted rise in U.S. stocks.

The situation underscores the global interconnectedness of financial markets and the challenges investors face in navigating uncertain times.