In the last session, Nvidia lost $593 billion in market value - a record one-day loss for any company, while shares of companies in semiconductor, power and infrastructure companies exposed to AI collectively shed more than $1 trillion.

Nvidia shares rose 2 percent in choppy trading on Tuesday, but was well below its premarket gains of more than 5 percent. Other AI-linked stocks were mixed with Oracle up 1.4 percent and Micron down 1.3 percent. Tech shares in Europe turned lower as the session progressed.

Monday's selloff was the result of a free AI assistant launched by Chinese startup DeepSeek, which had claimed that its models use less data at a fraction of the cost of services currently available.

Even though there was scepticism over DeepSeek's cost claims, OpenAI CEO Sam Altman called it an "impressive model", while US President Donald Trump called it "a wakeup call for our industries".

"We will obviously deliver much better models and also it's legit invigorating to have a new competitor!" Altman, the head of the AI firm behind ChatGPT, said in a social media post.

DeepSeek bursting on to the AI scene has upended the industry's perception that China was years behind its bigger US rivals.

Investors dumped tech stocks everywhere, with ripples felt from Tokyo to Amsterdam to Silicon Valley.

"We don't know how much of returns we're going to get off these AI investments. Everybody's second guessing what we have been doing for the last 18 months to two years, which is buying indiscriminately" into AI stocks, said Kim Forrest, chief investment officer at Bokeh Capital Partners.

"The Street is bullish in the long run, but in the short- to medium-term, things are uncertain."

In Europe, shares in Dutch semiconductor company ASML dipped 0.5 percent and Infineon fell 0.6 percent each, while German software group SAP shed 0.3 percent following quarterly results.

In the US, the Philadelphia semiconductor index dropped 0.1 percent, a day after suffering its deepest one-day percentage drop since March 2020.

NO MARGIN FOR ERROR

The selloff is a reminder of how much investor capital is concentrated in such a small number of stocks that trade at a large premium to the rest of the market.

Before Monday's rout, Nvidia's shares were trading at nearly 60 times the value of its earnings, compared with 22 for the entire S&P 500, according to LSEG data.

The hype around AI has powered a huge flow of capital into equities, leading to an increase of around $10 trillion in the market value of "Magnificent Seven" companies since ChatGPT kicked off the AI boom in November 2022.

However, Nvidia's valuation multiple slipping to its lowest in a year at 26.76, attracted retail investors.

Data analytics firm Vanda Research showed retail investors took advantage of the selloff in Nvidia to snap up a record net $562.2 million in the company's stock on Monday. Buy orders from retail orders outnumbered sell orders by 2:1 ratio on Monday, according to J.P.Morgan data.

"It's a very emotional reaction to something that we don't have the full story on. Investors are going to tiptoe back in and start to nibble at some of these oversold semiconductor stocks," said Art Hogan, chief market strategist at B. Riley Wealth.

ENTER THE ROBOTS

Investors have borrowed big to buy pricey tech stocks.

Monday's selloff likely forced a lot of selling of other assets to cover any losses and, with far more algorithmic trading models active, those moves would have been exacerbated, said Rob Almeida, global investment strategist and portfolio manager at MFS International.

"When you get days like this, behind the scenes, what might be exacerbating it is leverage that might be being unwound and isn't being accounted for," he said.

"So you combine all of these things, companies over-earning, maybe the AI supply chain being too full, valuations really expensive, huge leverage built up in the system and too many robots selling at the same time, and it all becomes obvious after the fact."

A number of Big Tech companies, including Apple and Microsoft, will report earnings later this week and executives will be keen to address concerns about capital spending.