Taiwan Semiconductor Manufacturing Co. ( TSM ) shares dropped sharply Monday as trading resumed after the Lunar New Year holiday, with investors responding to last week’s global selloff in artificial intelligence stocks triggered by developments at Chinese AI firm DeepSeek.

What Happened: TSMC shares fell as much as 6.6% to 1,070 New Taiwan dollars ($32.32) on the Taiwan exchange, marking their steepest decline in nearly six months. The selloff dragged down Taiwan’s benchmark Taiex index by 4.4% to 22,627 points, while Hon Hai Precision Industry Co. also known as Foxconn tumbled 9.2% to 165.50 New Taiwan dollars.

The decline follows DeepSeek’s announcement of its R1 AI model, which the company claims was developed for just $5.6 million – a figure that has drawn skepticism from industry experts. Wedbush analyst Dan Ives dismissed the claim as “likely a fictional story,” noting that comparable models like OpenAI‘s GPT-4 required investments exceeding $100 million.

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Why It Matters: The controversy deepened as prominent tech figures raised concerns about DeepSeek’s development process. OpenAI investor Josh Kushner suggested the Chinese model may have been trained using U.S. technology in violation of export controls. Scale AI CEO Alexandr Wang alleged DeepSeek had acquired 50,000 advanced chips through unreported channels, a claim that Tesla Inc. ( TSLA ) CEO Elon Musk appeared to support.

The uncertainty surrounding DeepSeek’s capabilities and methods has rippled through the semiconductor sector, contributing to a $600 billion decline in Nvidia Corp. ( NVDA ) market value last Monday. TSMC’s U.S.-listed shares had previously fallen 13% last Monday before recovering some losses.

The White House has reportedly begun examining DeepSeek’s operations for potential national security risks, particularly given the company’s backing by High-Flyer, an $8 billion Chinese quantitative hedge fund.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.