The world’s biggest technology companies saw $700 billion wiped off their value after a low-cost Chinese rival to ChatGPT threatened to snatch America’s lead in artificial intelligence and negate the need for big data centres.

Big tech investors from Tokyo to New York ran for the exit doors as DeepSeek launched a free AI assistant that uses less data at a fraction of the cost of incumbent services.

The implications are immense, possibly reducing the need for large-scale data centres which is seen as a growth opportunity in Scotland.

Scottish Mortgage Investment Trust, managed by Edinburgh-based Baillie Gifford, has been a big investor in emerging US technology companies. Its shares were among the day’s big fallers in London, down 54.5p to 1,004.5p.

At a presentation in Edinburgh earlier this month, Tom Slater, the trust’s manager, said artificial intelligence will be “transformational” for the global economy, but he said the trust had pulled back on Nvidia as AI becomes ‘commoditised’.

Nvidia, whose value has been driven by expectatoins that generative AI would fuel rapid growth in demand for its computer chips, lost $600 billion, or 17% of its value and its crown as the world’s most valuable public company.

Chip maker Broadcom was down 15%, followed by Microsoft which was 3.7% lower, while Google parent Alphabet, fell 2.7%.

The tech-heavy Nasdaq opened more than 3% down, though it clawed back some of its losses in later trade. In Asia, Japan’s SoftBank Group finished down 8.3%, and in Europe ASML fell 7.6%.

Analysts were forecasting that DeepSeek could disrupt the entire AI narrative that has helped drive the markets over the last two years.

By Monday its assistant had overtaken US rival ChatGPT in downloads from Apple’s app store.

The revelations come days before America’s so-called Magnificent Seven — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — begin reporting their latest figures.

They have seen their valuations rocket on hopes that they can capitalise on the AI revolution, but the latest trading data is likely to overshadowed by the extent to which the DeepSeek news affects the outlook

Nvidia sought to settle investors’ nerves, saying in a statement that more of its chips would be needed and that “DeepSeek’s work illustrates how new models can be created … leveraging widely-available models and compute that is fully export control compliant”.

London picks up

In London, the FTSE 100 suffered an initial slump as DeepSeek jitters grabbed investor attention, but the mix of more traditional stocks listed in the UK prevented it from experiencing the kind of rout that was felt on Wall Street, albeit a host of technology trusts – such as Scottish Mortgage – saw their share prices tumble.

The index finished 1.36 points higher to end the day at 8,503.71, recovering amid a positive session for consumer and pharmaceutical stocks. The Cac 40 ended 0.27% lower for the day and the Dax index was down 0.54%.

AJ Bell head of financial analysis Danni Hewson said the London market is awaiting the big ‘growth’ speech to be delivered by Chancellor Rachel Reeves and hoping there is enough to lift the gloom that has hung over the economy and stock markets since the Prime Minister warned last summer that things would get worse before they get better.

Among other stocks, bootmaker Dr Martens stumbled slightly during the session despite trimming back its losses for the latest year. The firm’s new boss said it is making progress in turning around its struggling US business but that revenues were still lower over the key festive period. Shares finished down 2.9% at 71p for the day.

Shares in drinks giant Diageo were a touch lower after it denied reports it was considering selling or spinning off its Guinness brand after booming popularity in recent years.