(Update) Wall Street has opened sharply lower after Chinese AI start-up DeepSeek spooked Silicon Valley by leapfrogging the popular ChatGPT app, leading to continuing pain for tech-focused investment trusts. 

The FTSE 100 clawed back this morning’s marginal loss to remain steady at 8,500 as US bourses notched up big falls as expected. The Nasdaq Composite dropped 2.9% in early trading while the S&P 500 was down 1.5% at around 3.30pm UK time. 

Nasdaq-listed microchip giant Nvidia plunged 11% – wiping $400bn from its value – as concerns about the rise of DeepSeek overwhelmed markets.

Falling US stocks put pressure on the FTSE 250 – which dropped 0.6% to 20,383 – given it is home to a large number of investment trusts, many of which are dependent on US holdings. Although tech-invested trusts managed to reverse some of this morning’s steep losses, they were still trading lower as Wall Street took a battering.

Blue-chip investment trust giant Scottish Mortgage (SMT ) was one of the biggest fallers, losing 4.5%, or 48p, to trade at £10.10, while its mid-cap tech peers also lost ground, with Allianz Technology (ATT ) sliding 5.7% to 419p.

They were followed by other tumbling tech-exposed trusts, including:

• Polar Capital Technology (PCT ) down 6.4% at 358p;
• Baillie Gifford US Growth (USA ) down 3% at 256p;
• And JPMorgan American (JAM ) down 2.5% at £11.50.

Developments in China have clearly rattled big tech, where a slew of earnings reports are due this week – including Meta, Microsoft, Apple, and Tesla – after DeepSeek overtook AI pioneer ChatGPT to become the top-rated free application on Apple’s App Store across the UK, US and China.

Last week, the company released a paper detailing how to build a large language model on a budget that is capable of learning and improving without human supervision, delivered on lower-cost chips and with less data.

European companies also took a hit, with key semiconductor equipment supplier ASML dropping 7.6%. 

DeepSeek has challenged US dominance in AI and at a cheaper cost, with unverified claims that its latest open-source model was developed for just $6m, versus the billions of dollar spent by rivals.

Russ Mould, investment director, at AJ Bell, said investors were ‘slowly digesting the news’ but the pull-back in stock markets suggests they ‘are worried about disruption to what has so far been an easy ride for most stocks linked to the AI theme’.

Both Donald Trump and Joe Biden have taken a protectionist approach to US dealings with China, stopping access to western technology, but Mould said the strategy ‘might have backfired’ as China has responded by ramping up efforts to build its own technology.

Richard Hunter, head of markets at Interactive Investor, said DeepSeek is not yet an ‘existential threat’ to US AI businesses but investors are still scrambling to ‘assess the potential damage it could have on a burgeoning industry’.

He said news that DeepSeek has entered the AI fray at a fraction of the cost is ill-timed for the US mega-caps releasing earnings update this week as ‘the larger question has suddenly become whether the hundreds of billions of dollars [being invested] in AI needs re-evaluation’.