UPDATE 1-China's DeepSeek sets off AI market rout

(Adds Frankfurt-listed share movement for Nvidia and others) SINGAPORE, Jan 27 (Reuters) - Nasdaq futures slumped and technology shares slid in Japan on Monday as surging popularity of a Chinese discount artificial intelligence model wobbled investors' faith in the profitability of AI and the sector's voracious demand for high-tech chips. Nasdaq 100 futures NQc1 were down 2.6% and S&P 500 futures EScv1 slipped 1.4% by the European morning, and shares in Nvidia NVDA.O supplier Advantest 6857.T fell 8.5% in Tokyo. Frankfurt-listed shares of Nvidia NVDA.F slipped about 7%, while those of Tesla TSLA.F , Amazon AMZN.F and Meta FB2A.F fell more than 2% in early European trading. Startup DeepSeek has rolled out a free assistant it says uses lower-cost chips and less data, seemingly challenging a widespread bet in financial markets that AI will drive demand along a supply chain from chipmakers to data centres. "It's a case of a crowded trade, and now DeepSeek is giving a reason for investors and traders to unwind," said Wong Kok Hoong, head of equity sales trading at Maybank. AI-focused startup investor SoftBank Group 9984.T slid more than 8%, on course for its biggest one-day fall since Sept. 30. Last week it announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI. Chip-making equipment giant Tokyo Electron 8035.T fell 5%. Tech-heavy markets in Taiwan and South Korea were closed. European tech stocks .SX8P , especially Dutch computer chip equipment maker ASML ASML.AS , which counts Taiwan's TSMC 2330.TW , Intel INTC.O and Samsung 005930.KS as its customers, will likely face pressure at the open. Shares of Nvidia, the poster child of AI, have risen 196% since the start of 2024, outperforming the 35% gain in the Nasdaq .IXIC . CAPEX IN QUESTION Little is known about the small Hangzhou startup behind DeeepSeek, but its assistant leapfrogged rival ChatGPT to become the top-rated free application on Apple's App Store in the United States on Monday. DeepSeek researchers wrote in a paper last month that the DeepSeek-V3 model, launched on Jan. 10, used Nvidia's H800 chips for training, spending less than $6 million. H800 chips are not top-of-the-line. Initially developed as a reduced-capability product to get around restrictions on sales to China, they were subsequently banned by U.S. sanctions. Besides chips, data centres and related companies also took a hit on Monday, with Malaysia's utility conglomerate YTL Power YTLP.KL falling 7% in Kuala Lumpur to its lowest in two months. "The market is questioning the capex spend of the major tech companies," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noting that positioning had become crowded. To be sure, much remains unknown about the details of DeepSeek's development and the hardware it uses. "The idea that the most cutting-edge technologies in America, like Nvida and ChatGPT, are the most superior globally, there's concern that this perspective might start to change," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. "I think it might be a bit premature." Markets reaction in China was also mixed, with a CSI300 index of AI shares .CSI930713 down 2.2% but big data stocks .CSI930745 up 4%. (Reporting by Tom Westbrook and Ankur Banerjee in Singapore. Editing by Gerry Doyle) (([email protected]; +65 6973 8284;))