**What happened: **Semiconductor stocks fell in early trading on Monday, with the PHLX Semiconductor Index declining 2% as fears of increased competition from China spread across the sector.
US-listed shares of memory and storage leaders Micron Technology (MU) and SK Hynix (SKHY) tumbled around 4%. AI chip heavyweight Nvidia (NVDA) stock dropped 1%. Peer AMD (AMD) fell more than 2%. Chip maker Intel (INTC), along with Marvell (MRVL) and Qualcomm (QCOM), also slid.
Among the semiconductor equipment makers, ASML (ASML), Applied Materials (AMAT), and Lam Research (LRCX) dropped.
**What's behind the move: **The move in semiconductors came after China's Alibaba (BABA) unveiled its most powerful AI model yet, Qwen3.8-Max.
Meanwhile, a research firm noted that China-based AI developer DeepSeek's latest model is more than 100 times cheaper than Anthropic's Claude Fable 5.
The developments highlight intense competition among Chinese tech firms to develop advanced AI systems that are both powerful and affordable.
W**hat else you need to know: **Chinese AI companies are betting that open-weight AI models will give developers greater access and flexibility compared with the closed-source approach used by OpenAI, Anthropic, and Alphabet's Google.
The debate has been the focus of Silicon Valley in recent weeks. Semiconductor stocks have been at the center of the AI trade this year, helping propel the sector to a record high in June.
Since then, chip stocks have tumbled into bear-market territory, falling more than 20% from their highs as investors grow increasingly concerned about hyperscalers' massive AI spending spree.
Worries about China's advancement in AI, driven by less expensive models, have also weighed on the AI infrastructure trade.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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