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 were down 2.4% and S&P 500 futures

by the Asia afternoon, and shares in Nvidia ( NVDA )

supplier Advantest ( ADTTF ) fell 8.5% in Tokyo.

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 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 ( TOELF ) fell 5%.

Tech-heavy markets in Taiwan and South Korea were closed.

European tech stocks, especially Dutch computer chip

equipment maker ASML, which counts Taiwan's TSMC

, Intel ( INTC ) and Samsung as its

customers, will likely face pressure at the open.

Shares of Nvidia ( NVDA ), the poster child of AI, have risen 196%

since the start of 2024, outperforming the 35% gain in the

Nasdaq.

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 ( NVDA ) 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

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 down 2.2% but big data stocks

up 4%.