Stocks in Asia and the US fell on technology on Friday Advances announced by Chinese artificial intelligence companies have fueled concerns that the surge in AI spending that has driven this year’s market rally could be at risk.
The announcement comes from Chinese company Moonshot, which unveiled its most capable AI model, Kim K3, which it claims has significantly closed the gap with models such as OpenAI’s ChatGPT and Anthropic’s Claude.
Following the news, Taiwan’s benchmark stock index fell more than 6%, and Japanese markets closed down 4%. Korean markets were closed on Friday due to the holiday. On Friday, the Nasdaq fell 1.5% and the S&P 500 fell 0.7%. The Dow Jones Industrial Average fell 60 points, or 0.1%.
Moonshot said the Kimi K3 is approaching the performance of cutting-edge models such as Anthropic’s Claude Fable 5, re-emerging concerns about competition from Chinese companies.
According to Moonshot, Kimi K3 is the world’s largest open source model. The open-source model could pose problems for U.S. AI companies looking to charge subscriptions to access closed-source models. This could also be a blow to chip makers that are betting on continued AI investment.
After surging in recent months, the chipmaker fell following a recent rise in volatility. The popular index, which tracks semiconductor stocks, fell more than 2% on Friday and has fallen more than 20% since hitting a record high in late June. Chipmaker Micron (MU) is down about 30% since hitting a record high in late June, but is still up nearly 200% this year.
Competition from alternative open source models could harm growth projections for AI companies, complicate large-scale infrastructure spending plans, and hurt revenue projections for chipmakers and companies betting on the AI boom.
Breakthroughs by Chinese AI companies have shaken up the U.S. market in the past, such as in January 2025 when Chinese artificial intelligence company DeepSeek released a model that challenged assumptions about American dominance in technology.
While Kimi K3 spooked the market on Friday, some investors said it remains to be seen how much of an impact it will have. U.S. stocks quickly recovered from the deep-seeking scare in January 2025, and tech companies continued to spend on AI infrastructure.
Shares of Google’s parent company Alphabet (GOOG) fell 4% on Thursday after reports that it was delaying the launch of its flagship AI model, and fell another 2% on Friday.
Nvidia stock (NVDA) fell about 2% on Friday. The company’s market capitalization at one point fell to $4.86 trillion, below Apple’s, and Apple returned to its position as the world’s most valuable company. Apple stock (AAPL) is down 1% but is up 14% this month.
It’s been six weeks since the S&P 500 and Nasdaq index hit new record highs. Since then, the S&P is down about 2% and the Nasdaq is down about 6%. Fears that investors are paying too much for AI and tech stocks have already reignited in recent weeks, and the announcement of a new AI model that could rival America’s top models has added to the worries.
Overall, the S&P 500 remains near all-time highs. While investors are moving away from tech stocks, they are also turning to other sectors, such as financials. Exchange-traded funds that track tech stocks are down 7% this month, while exchange-traded funds that track financial stocks are up 6%.
Another headwind for stocks was that oil futures continued to rise following the overnight U.S. attack on Iran, raising concerns that oil flows from the Persian Gulf could be cut off again. Rising oil prices could spark fresh inflation concerns, but concerns have eased as oil prices have fallen since early June on hopes of an end to the war.
Annual inflation was 3.5% in June, compared with 4.2% in May, according to consumer price index data released Tuesday by the U.S. Bureau of Labor Statistics. This was in response to the sharp drop in gasoline prices due to the easing of tensions in the Middle East.
But crude oil futures rose above $85 a barrel in Friday trading, and the average price of a gallon of regular U.S. gasoline is nearing $4 for the first time in a month, hitting $3.98 in AAA’s latest reading.
“The combination of tech and inflation concerns has actually overshadowed the more upbeat outlook following the weak U.S. Consumer Price Index (CPI) report earlier this week,” Deutsche Bank Research said in a note to investors on Friday.
