Kimi K3 triggers another "DeepSeek moment"? Goldman Sachs warns: "The era of compute expansion" may have come to an end.

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Moonshot AI released its new model Kimi K3, once again shaking the market’s core assumptions about large-scale AI computing investment with a low-cost, open-source strategy. Global technology and semiconductor stocks tumbled in response, and investor fears of a repeat “DeepSeek moment” spread rapidly.

Before the US market opened, Nasdaq 100 index futures fell more than 1.8%, Nvidia led the “Magnificent Seven” tech stocks lower, and the Philadelphia Semiconductor Index has dropped over 18% from its recent high, approaching the threshold for a technical bear market. Andrew Tyler, Head of Global Market Intelligence at JPMorgan, said bluntly in a client note that the release of Kimi K3 “undoubtedly added fuel to the fire,” and “concerns over a ‘DeepSeek 2.0 moment’ are weighing on both Asian and U.S. tech stocks.”

The sell-off spread to global markets, with the Nikkei 225 plunging over 4% on Friday, and the MSCI Asia Pacific Index seeing its largest single-day drop in three weeks.

Rich Privorotsky, Goldman Sachs partner and Head of Equities, characterized this decline as a “deleveraging event,” warning that the “era of compute expansion” may be over. Meanwhile, escalating tensions in the Middle East drove up oil prices, with geopolitical risks further increasing market volatility.

Low Cost and Open Source: Targeting AI Compute Pricing Power

Kimi K3, released by Moonshot AI, claims to outperform the flagship products of OpenAI and Anthropic in several public programming and agent benchmarks, with costs about 40% lower than comparable top-tier U.S. models.

In the Arena comprehensive text rankings, Kimi K3 scored 1679 points, topping the frontend code arena and surpassing Claude Fable 5, achieving a leap from 18th to 1st place compared to the previous version. In the frontend sector, the model ranked first in six out of seven subfields, including branding and marketing, reference design, and data and analytics.

Moonshot AI plans to release Kimi K3 as open-weight (open source of weights) on July 27, allowing enterprises and governments to customize deployments on their own systems.

Goldman Sachs’s Privorotsky noted that the more thought-provoking question is: How could a Chinese lab, unable to match the largest pre-training scale of Western labs, rapidly close the gap with top U.S. models through architectural innovation, synthetic data, reinforcement learning, and post-training techniques? He stated this does not prove the “scaling law” has failed, but rather shows “scaling is no longer the only winning path.”

AI analyst Kim Isenberg commented: “The entire game has changed—this will trigger ‘red alerts’ at some institutions.”

Valuation Bubbles and Capex Concerns Intertwined

This sell-off was not caused by a single factor but a combination of multiple pressures. TSMC’s earnings showed a 77% year-on-year jump in quarterly net profit, and it raised its full-year revenue growth forecast to over 40%, but at the same time announced $64 billion in capex plans for 2026, exceeding prior expectations and deepening doubts about whether AI infrastructure investments can generate sufficient returns.

Alphabet’s latest Gemini 3.5 Pro AI model experienced months of delays, further pressuring tech sector sentiment. Meanwhile, Chinese memory chipmaker Changxin Technology is set to complete its IPO on the STAR Market of the Shanghai Stock Exchange, with retail subscriptions oversubscribed by more than 212 times for a fundraising amount of about $9.8 billion, setting China’s second-largest IPO record.

So far this year, the Philadelphia Semiconductor Index is still up about 68%, but Matt Britzman, Senior Equity Analyst at Hargreaves Lansdown, sees the current wave of selling as more of an “unwinding of crowded trades,” rather than a “sudden collapse” of the AI investment thesis. He said, “If large-scale AI spenders can confirm their investment plans remain unchanged, sideline capital may quickly come back in,” describing the current situation as a “healthy correction in the hottest corner of the AI market.”

Tech Stocks Under Pressure, Equal-Weight Index Hits Record High

Notably, this wave of selling in tech stocks did not drag the overall market into broad weakness.

The S&P 500 Equal Weight Index closed at a record high on Thursday, indicating clear structural rotation within the market. Nearly three-quarters of S&P 500 components closed higher on Thursday, even though the index as a whole fell 0.51%.

Citigroup’s Head of European and Global Equity Strategy, Beata Manthey, told Bloomberg TV that sharp sector rotation is a necessary condition for the bull market to spread beyond tech, “The market has started to look forward to the long-awaited broad-based rally, and to achieve this, rotation is needed—which sometimes happens quite violently, just as we’re seeing now.”

Francisco Simon, Head of European Strategy at Santander Asset Management, distinguished between fundamentals and positioning. “From a fundamentals perspective, the picture remains solid: this year’s earnings momentum is strong and results continue to deliver.” He suggested holding cash in the short-term to avoid risk, and pointed out that “earnings season will likely remain the key source of confidence—if companies continue to deliver strong results and valuations look more attractive after corrections, this could attract long-term buyers back.”

EPFR Global Market Intelligence data shows U.S. corporate insiders sold a total of $77.6 billion in stock in the first half of the year, the second-highest level in over 20 years, which some investors see as another warning sign of market caution.

Geopolitical Risks Stack Up, Global Stocks Under Pressure

Beyond the chip stock sell-off, escalating tensions in the Middle East also weighed on market sentiment. The U.S. military struck Iran for the sixth consecutive night, targeting airports, rail stations, and multiple bridges; Iran retaliated immediately against U.S. bases in Kuwait, Bahrain, and Qatar, warning: “Either all countries in the region can export oil, or no one can.”

As a result, Brent crude futures rose over 1.7%, trading in the $85–86/barrel range, on track for the biggest weekly gain since April; WTI crude rose about 2.6% premarket to $80.47/barrel. Rising oil prices and falling tech stocks together drove funds into U.S. Treasuries, with the 10-year yield down about 4 basis points to around 4.52%.

Federal Reserve Governor Philip Jefferson said in a speech that if inflation does not decline as expected, current policy may have to be reconsidered, but emphasized that current policy “has ample flexibility to respond to changing data,” leaving considerable uncertainty over future market direction.

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