Launch of Kimi K3 Triggers Chipmaker Stock Sell-off

On July 16, Chinese company Moonshot AI released the Kimi K3 model with 2.8 trillion parameters, sparking a sell-off in the semiconductor market.

Chipmakers and AI companies saw their stocks decline globally on Friday, with Asian firms hit hardest: the Taiwanese index dropped over 6%, while the Japanese market closed down 4%. In the U.S., the sell-off continued, with the Nasdaq falling 1.5%, marking the worst session of the week.

Source: Yahoo Finance. Source: Yahoo Finance. Source: Yahoo Finance.

Shares of Chinese neural network developer Z.ai plummeted nearly 30% in Hong Kong. Nvidia temporarily lost its title as the world's most valuable company to Apple.

Investors likened the situation to the "DeepSeek effect." In January 2025, the AI startup released the R1 model, causing Nvidia to lose about $590 billion in market capitalization in a single session.

The Kimi K3 is now the largest open model at launch. In an independent ranking by the Artificial Analysis Intelligence Index, it scored 57 points, surpassing Claude Opus 4.8 and GPT-5.5. Its score nearly matched Claude Fable 5 and GPT-5.6 Sol, and in some tests, Kimi K3 outperformed competitors at a significantly lower cost.

The model supports a context of 1 million tokens, text, and images. Full weights will be released on July 27 under a Modified MIT license, allowing smaller labs to use the model for free.

Wall Street analysts largely anticipated these release effects. Morgan Stanley described K3 as a result of steady progress rather than a shock. Analyst Gary Yu noted that Chinese LLMs are catching up to U.S. leaders in size, performance, and price.

Bernstein called the release "confirmatory": AI is advancing rapidly, and China is keeping pace. Analyst Robin Zhu expects the country to continue gaining market share.

Some experts believe the sell-off is excessive. They argue that the price of K3 is close to that of GPT-5.6, rather than significantly lower.

The decline also affected cryptocurrencies, with Bitcoin dropping below $64,000.

Hourly chart of BTC/USDT on Binance. Source: TradingView.

Moonshot AI is backed by Alibaba, which invested $1 billion in 2024, valuing the startup at $2.5 billion. The project is now valued at approximately $31.5 billion.

A broader sell-off in the chipmaker market has been ongoing for several weeks amid concerns over valuations of AI infrastructure-related companies.

The Philadelphia Semiconductor Index is now over 20% below its late June record, officially marking a "bear market." The VanEck Semiconductor Fund, a sector benchmark, broke a key moving average for the first time since April earlier in July. The release of Kimi K3 only accelerated the decline.

It’s worth noting that in July, around 200 individuals protested between the offices of OpenAI, Anthropic, and Google DeepMind, demanding a halt to the training of more powerful AI models.