Overseas stocks and US stock futures fell sharply Friday after technological advances announced by a Chinese artificial intelligence company intensified concerns that the AI spending spree driving this year’s market rally could be at risk.
The announcement came from Chinese company Moonshot, which unveiled Kimi K3, its most capable AI model, and one it said closed much of the gap with models such as OpenAI’s ChatGPT and Anthropic’s Claude.
Market indexes in South Korea and Taiwan closed down more than 6%, while markets in Japan closed down 4% on the news. Nasdaq futures were down 1.6% early Friday, with futures tied to the Dow and S&P 500 also lower.
Breakthroughs by Chinese AI companies have rattled US markets in the past, such as in January 2025, when Chinese artificial intelligence company DeepSeek unveiled a model that challenged assumptions about US dominance in the technology sector.
Investments in AI and tech stocks have driven much of the market rally this year. AI chipmaker Nvidia has become the world’s most valuable company in recent years, but Nvidia shares (NVDA) were down more than 2% in premarket trading Friday. Shares of Google parent Alphabet (GOOG), which tumbled 4% Thursday slipped another 1% in premarket trading early Friday.
Chipmakers also tumbled, continuing a recent bout of volatility after soaring in recent months. Micron (MU), which fell more than 5.5% Thursday, dropped another 2% in premarket trading. Micron is down 30% since hitting a record high in late June but is still up almost 200% this year.
Kimi K3 is the world’s largest open-source model, according to Moonshot. Open-source models can pose problems for US AI companies that are trying to charge subscriptions to access their closed-source models.
Another headwind for stocks was a continued rise in oil futures on US attacks overnight in Iran raising fears about the flow of oil from the Persian Gulf again being cut off. Rising oil prices could drive new inflation concerns which had abated as oil fell since early June on hopes of the war there being over.
Annual inflation measured 3.5% in June, compared to 4.2% in May, according to Consumer Price Index data released Tuesday by the Bureau of Labor Statistics. That came after a steep decline in gas prices as tensions eased in the Middle East.
But oil futures moved back above $85 a barrel in Friday trading, and the US average price of a gallon of regular gas is approaching $4 for the first time in a month, hitting $3.98 in the latest reading from AAA.
“That combination of concerns around tech and inflation has really put a dent in the more buoyant narrative after the soft US CPI report earlier this week,” said Deutsche Bank Research in a note to investors Friday.
CNN’s Anna Cooban contributed to this report.