Chinese new AI startup Moonshot surprises investors, sparks fresh selloff in tech stocks

Moonshot’s announcement came as President Xi Jinping made his first appearance at China’s premier AI summit, lending his support to the country’s push to become a global leader in artificial intelligence. The timing underscores how rapidly China’s AI developers are closing the gap with their US rivals, intensifying competition both at home and abroad.

Bloomberg’s Asian semiconductor index slid more than 6%, led by losses in Kioxia Holdings Corp., and Nasdaq 100 futures fell 2% amid concerns that increasingly capable Chinese models could curb demand for the most advanced AI chips. Shares of Moonshot’s Chinese rival Z.AI tumbled 28% in Hong Kong, their biggest decline since listing in January, while another homegrown competitor, MiniMax Group Inc., dropped 16%. Softbank Group Corp., often viewed as a proxy for OpenAI, plunged 9% in Tokyo.

To be sure, benchmark scores don’t always translate into commercial success, and Moonshot’s claims have yet to be fully validated by the broader AI community. Markets also weathered last year’s “DeepSeek moment” as US hyperscalers pressed ahead with record AI spending, easing fears that demand for cutting-edge chips would falter.

“I wouldn’t call it a DeepSeek 2.0 moment, as this development did not come out of the blue,” said Kevin Net, portfolio manager at Financiere de L Echiquier. “It is a confirmation that China is firmly in the AI race with the US, particularly when cost efficiency is taken into account,” he said, adding that the tech industry is beset by a host of concerns, including AI capex returns, stretched valuations and signs of broader AI fatigue that could account for Friday’s selloff.

Other forces were also weighing on the sector. Investors have increasingly been rotating out of crowded semiconductor trades after the group’s outsized gains this year. While Taiwan Semiconductor Manufacturing Co.’s earnings beat expectations across the board, traders used the results as an opportunity to take profits.

Source: Artificial Analysis Intelligence Index, Bloomberg

Moonshot’s release shows that China’s AI race is evolving beyond a competition on cost alone. The startup priced its latest model at roughly the same amount as Anthropic Sonnet, a premium compared to other Chinese models based on its strong capabilities. Moonshot also claimed it surpassed Z.AI’s most advanced offering on coding tasks. That’s stoking concerns that competition in China’s AI sector is intensifying even as the country’s sector leaders race onto global markets.

Users cheered the capabilities of Moonshot’s new model, with Leonid Mironov, a portfolio manager at Gavekal Capital Ltd., calling it “brilliant.”

“In my use, it’s clearly the best Chinese model ever,” Mironov said. “The blended price for K3 is about half of the Claude Opus and GPT-5.5, which represents meaningful improvement of economics of the tokens.” Kimi K3’s strong performance raised concerns over Z.AI’s position. The company is on track for annual recurring revenue of $1 billion, Bloomberg News has reported.

Moonshot said its latest model has 2.8 trillion parameters and a 1 million token context window, gauges of its capability. Artificial Analysis ranked Kimi K3 ahead of Anthropic’s Opus 4.8 on some frontier benchmarks, making it the first Chinese open-weight model to achieve that milestone.

Earlier Friday, Xi hailed China’s advances in low-cost artificial intelligence while calling for a more open global technological order.

“AI development should not be a solo performance by a single country, but a symphony of international cooperation,” he said.