Kimi K3 has sparked flashbacks of DeepSeek in the stock market

China has done it again. Moonshot AI launched Kimmy K3 In the dead of night, the markets woke up today to do what they always do when a Chinese laboratory fills the gap: they panicked.

Semiconductor and artificial intelligence stocks were generally lower on Friday. Taiwan’s index fell by more than 6%. Japan closed down 4%. The Nasdaq index fell by 1.5%, its worst session of the week.

the Compare Deep Sec Seems well deserved. When DeepSeek dropped the R1 in January 2025, the assumption that frontier AI required frontier spending — and chip orders to match — collapsed overnight. Nvidia lost about $590 billion in market value in one session. This time the damage spread throughout the sector.

The VanEck Semiconductor ETF (SMH) fell below its EMA support band — the moving average that tracks price direction over the previous months — for the first time since April, extending a rout that left it 20% below its record high in late June.

On the AI ​​Index — an independent composite benchmark that aggregates model performance across reasoning, knowledge, mathematics, and coding — the K3 scored 57 points, ranking above Claude Opus 4.8 and GPT-5.5, and is practically on par with OpenAI’s Claude Fable 5 and GPT-5.6 Sol, beating them in specific benchmarks at a fraction of the price. The full weights drop on July 27 under a modified MIT license, meaning small labs will make the model available for free.

Wall Street analysts largely expected this. Bernstein’s Robin Chu called the release “confirmatory” — another data point in a trend that has been building all year. Morgan Stanley analyst Gary Yu framed K3 is the result of a steady compound advance rather than a shock. “The K3 has received positive feedback globally, indicating an overall catch-up of Chinese LLM graduates with the American leaders in terms of model size, performance and price,” he wrote.

Bernstein analyst Robin Chu also framed this as catching up. “At a high level, K3 feels our views are confirmed that (1) (state-of-the-art) AI continues to develop rapidly; and (2) Chinese AI can continue to keep pace with (the latest global developments), and gain some share over time.”

Moonshot is backed by Alibaba, which invested $1 billion in the company in 2024 at a valuation of $2.5 billion. The startup is now worth about $31.5 billion.

like Decryption covered in MayMoonshot actually has deeper roots in US developer circles than most people realize – Cursor’s Composer 2 was found running on Kimi K2.5 undisclosed before the Cursor team acknowledged the open source base.