The 'DeepSeek Moment' Returns! China's Moonshot AI Kimi K3 Deals Blow to U.S. Stocks, SOX Enters Bear Market

A new 'DeepSeek moment' appears to be unfolding. Moonshot AI, a Chinese artificial intelligence (AI) startup, has recently launched its latest AI model, Kimi K3, sparking fresh anxiety among U.S. AI bulls.

According to Business Insider, market observers note that Kimi K3's performance is considered on par with industry-leading models from OpenAI and Anthropic, yet it requires significantly fewer chip computing resources—shaking the U.S. AI sector. This scenario closely mirrors last year's global market shock caused by China's DeepSeek model.

The announcement has drawn attention from Elon Musk, CEO of Tesla, who commented 'Impressive' in the post's replies.

On Friday (17th), semiconductor stocks faced intensified selling pressure. Investors digested the news while continuing to worry about whether tech giants' spending on AI hardware is excessive, and what impact a future slowdown in capital expenditure might have on the broader industry ecosystem.

The Philadelphia Semiconductor Index closed down 1.63% at 11,673.889 points. Although the index just recorded its best-ever first half performance in history, it has now fallen more than 20% from its recent peak, officially entering a bear market.

Major tech stocks that saw significant declines on the day include:

- Samsung Electronics: down 8.77% - TSMC (2330-TW): down 7.29% / TSMC ADR (TSM-US): down 2.77% - Intel (INTC-US): down 2% - AMD (AMD-US): down 1.03% - NVIDIA (NVDA-US): down 2.21%

JPMorgan strategists noted in a report that the emergence of Kimi K3 is reigniting fears of a 'DeepSeek 2.0' repeat. Last year's sell-off wiped out as much as $1 trillion in tech market capitalization, triggered by market realization that an open-source model could be built at far lower hardware costs.

Mark Malek, Chief Investment Officer at Siebert Financial, commented on the market reaction, stating that the technological gap between the U.S. and China in cutting-edge AI has dramatically narrowed overnight—just as Wall Street was trying to convince itself that 'AI economic benefits are unjustified.'

Kent Fung, Vice President of Market Intelligence at Fundstrat, pointed out that while the rotation out of AI capital expenditure beneficiaries has been ongoing for weeks, today's move may have been ignited by Moonshot AI's release of the open-source Kimi K3 model.

All three major U.S. indices closed lower on Friday. The tech-heavy Nasdaq 100 plunged nearly 1.49%; the S&P 500 fell 1.01% to close at 7,457.69; and the Dow Jones Industrial Average dropped 0.77% to 52,146.42.

Notably, despite TSMC reporting better-than-expected Q2 earnings and raising its future outlook, the stock failed to reverse its downward trend.

JJ Kinahan, Senior Vice President at Cboe Global Markets, believes this reflects the market's current focus on AI capital spending, with investors questioning whether massive investments can yield commensurate returns.

TSMC, the world's largest semiconductor foundry, announced a 14% increase in its global capital budget to $64 billion, which appears to have triggered investor anxiety. Kinahan added that such massive spending has reignited concerns about whether potential returns can keep pace.

David Morrison, Senior Market Analyst at Trade Nation, wrote in a report that the market is now questioning how long the current pace of growth in the tech sector can be sustained.

He said the key question now is: will this sell-off become another 'buy the dip' opportunity, or will it accelerate further as everyone rushes for the exits simultaneously?

Despite heavy recent selling pressure, Jefferies analysts noted in a Friday morning report that semiconductor stocks have not yet reached technical levels that suggest a rebound is imminent.

The firm stated: 'Even though semiconductors and hardware stocks have been heavily sold off recently, it's noteworthy that the proportion of semiconductors and hardware stocks meeting “oversold” conditions is still far from the levels typically seen when selling pressure is exhausted.'

Technology analyst Luke Lango noted in his Friday report that both the VanEck Vectors Semiconductor ETF (SMH-US) and the Philadelphia Semiconductor Index have broken below their 50-day moving averages, signaling that market momentum is beginning to deteriorate.

Lango said: 'Technical indicators are worsening, and the market must take this seriously. If the downtrend continues to expand from current levels, it must be taken seriously.'

Noted economist David Rosenberg stated that in addition to tech stock pressure, rising geopolitical tensions—particularly the escalating Iran conflict following the collapse of a ceasefire agreement—are also contributing to risk-averse market sentiment.

The U.S. military said it completed its sixth round of airstrikes on Iran on Thursday night. Meanwhile, Iran claimed it launched attacks on U.S. military forces stationed in Syria and Bahrain on Friday.

Additionally, Iran attacked a power and water supply facility. Kuwait stated this further damaged Middle Eastern infrastructure, heightening market concerns about rising energy prices and inflation.

Rosenberg said: 'This week, the market has ultimately shifted from “risk-on” to “risk-off.”'