Stocks in Asia and the United States experienced a decline on Friday, following the announcement of technological advancements by a Chinese artificial intelligence company. This development heightened apprehensions that the current surge in AI-related expenditures, which has been a significant factor in this year’s market rally, may be jeopardised. Chinese startup Moonshot AI has introduced Kimi K3, a new open-source model that the company claims significantly narrows the disparity with models like OpenAI’s ChatGPT and Anthropic’s Claude. The Nasdaq experienced a decline of 1.4% on Friday, whereas the S&P 500 saw a decrease of 1%. The Dow closed lower by 407 points, or 0.77%. Taiwan’s benchmark stock index experienced a decline of over 6%, while Japanese markets also faced a downturn, closing down by 4% in response to the news. South Korean markets were closed on Friday in observance of a national holiday. Moonshot indicated that Kimi K3 is approaching the performance levels of advanced models such as Anthropic’s Claude Fable 5, bringing to light worries regarding competition from firms based in China. Kimi K3 is the world’s largest open-source model, according to Moonshot. Open-source models present challenges for US AI companies attempting to monetise their closed-source models through subscription fees. That may also adversely affect the chipmakers that are wagering on sustained AI expenditure. A widely followed index that tracks semiconductor chip stocks experienced a decline of 1.6% on Friday, resulting in a total decrease of 20% since reaching a peak in late June, thus entering a technical bear market. The index experienced a decline of 10% this week, marking its most significant downturn in over a year; however, it remains elevated by 65% year-to-date.
Following a significant rise in recent months fuelled by enthusiasm for AI, chipmakers are experiencing a notable decline. Chipmaker Micron is down about 30% since reaching a record high in late June but remains up nearly 200% this year. Competition from alternative, open-source models may adversely affect forecasts for the growth of AI companies and complicate their plans for substantial infrastructure investments, potentially leading to downward revisions in revenue projections for chipmakers and firms wagering on the AI boom. Breakthroughs by Chinese AI companies have unsettled US markets historically, exemplified in January 2025 when the Chinese artificial intelligence firm DeepSeek introduced a model that questioned the prevailing notions of US supremacy in the technology sector. While Kimi K3 rattled markets Friday, some investors suggested that its true impact remains to be seen. US stocks swiftly rebounded from the DeepSeek scare in January 2025, while technology firms maintained their investment in the development of AI infrastructure. Shares of Google parent Alphabet, which tumbled 4% Thursday after reports it is delaying the launch of a flagship AI model, slipped another 2% Friday. Nvidia shares were down more than 2% Friday. The company’s market value briefly fell to $4.85 trillion, dipping below Apple’s and reinstating Apple as the world’s most valuable company. Apple shares rose 0.1% and are up 15% this month. It has been six weeks since the S&P 500 and Nasdaq reached their record highs.
The S&P has declined approximately 2% since that time, whereas the Nasdaq has experienced a decrease of around 6%. Nerves about whether investors were overpaying for AI and tech stocks have resurfaced in recent weeks, and the announcement of a new AI model that could rival the top US models adds to the anxiety. “We have been concerned over the past few weeks that tech, especially semis, had run too far, too fast,” Sameer Samana. “Really markets were just looking for any excuse to sell.” However, Samana expressed his continued confidence in the long-term outlook for the earnings and expenditures of American AI companies. “Chinese competition is not new and we believe the overall pie will grow enough to sustain US tech companies,” he added. All told, the S&P 500 remains close to its historical peaks. Investors have shifted their focus towards sectors such as financials, concurrently distancing themselves from technology stocks. An exchange-traded fund that follows technology stocks has experienced a decline of over 7% this month, whereas a fund focused on financials has seen an increase of 5%. Another headwind for stocks was a continued rise in oil futures following US attacks overnight in Iran, which raised concerns about the potential disruption of oil flow from the Persian Gulf. Increasing oil prices may reignite inflation worries that had diminished as oil prices declined since early June, fuelled by optimism regarding the resolution of the conflict in that region.
Annual inflation registered at 3.5% in June, a decrease from 4.2% in May, as reported by the Consumer Price Index data released on Tuesday by the Bureau of Labour Statistics. That followed a significant drop in petrol prices as tensions in the Middle East subsided. Oil futures experienced an uptick during Friday’s trading session, with the US average price of a gallon of regular petrol nearing the $4 mark for the first time in a month, recorded at $3.98 according to the latest data. Brent crude on Friday increased approximately 4.6% to close at $88.10 per barrel, marking its highest point since June 11. WTI, the US benchmark, experienced an increase of approximately 4.5%, concluding at $82.49 per barrel, marking its peak since June 12. WTI experienced a notable increase of 15.5% this week, marking its largest weekly gain since the initial week of the conflict with Iran in early March. Brent experienced a significant increase of nearly 16%, marking its largest weekly rise since late April. “That combination of concerns around tech and inflation has really put a dent in the more buoyant narrative after the soft US CPI report earlier this week,” said Deutsche Bank Research in a note to investors Friday.