The benchmark S&P/ASX200 index on Tuesday finished down 9.8 points, or 0.12 per cent, to 8,399.1, while the broader All Ordinaries fell 15.9 points, or 0.18 per cent, to 8,644.5.
On Wall Street, AI chipmaker Nvidia plummeted 16.9 per cent and Broadcom fell 17.4 per cent, days after China's DeepSeek unveiled an AI model that's said to rival the power of ChatGPT at a fraction of the cost and computing power.
Overall the Nasdaq fell 3.1 per cent and the S&P500 dropped 1.5 per cent, while the AI assistant quickly shot to the top of Apple's App Store amid curiosity about the technology.
Saxo chief investment strategist Charu Chanana said that by developing cutting-edge AI models using less advanced and more cost-efficient hardware, DeepSeek was challenging the heavy investments that US tech companies were pouring into high-cost AI infrastructure.
"This raises critical questions about whether the traditional capital-intensive approaches are sustainable in the long run," Ms Chanana said.
The ASX doesn't have many artificial intelligence companies, but other firms that have gained in recent months on the AI narrative were struggling on Tuesday.
Uranium developers Bannerman Energy, Lotus Resources and Deep Yellow plunged by between 20.1 per cent and 15.5 per cent, while Peninsula, Boss Energy and Paladin faded by between 13.4 and 9.4 per cent.
Data centre operators Nextdc, Goodman Group and Digico Infrastructure REIT dropped 7.2, 8.2 and 11.5 per cent, respectively.
Until now the thinking around AI was that the technology would need to be powered by electricity-hungry data centres, perhaps powered by nuclear energy.
Tech giants Microsoft, Alphabet, Meta Platforms and Amazon have all struck deals with nuclear developers in the past four months, with Microsoft's pact aiming to reopen the Three Mile Island plant made infamous by a 1979 mishap.
This thinking in turn led to strong gains by the ASX's uranium developers, which partially unwound on Tuesday.
Janus Henderson international portfolio manager Richard Clode said that the market had rapidly shifted from concerns that AI capital expenditure was too high, to now worrying that AI capex was going to collapse.
"Both cannot happen simultaneously, and the truth likely lies in between," Mr Clode said.
Elsewhere, the big banks all finished higher, with CBA rising 0.4 per cent to $159.28, Westpac advancing 1.2 per cent to $33.40, and NAB and ANZ both climbing 1.1 per cent, to $39.82 and $30.52, respectively.
In the heavyweight mining sector, BHP and Rio Tinto both rose 0.4 per cent, to $39.48 and $18.88, respectively, while Rio Tinto dropped 0.6 per cent to $117.68.
Goldminers were lower as the precious metal changed hands at $US2,740 an ounce, with Northern Star down 2.2 per cent, Westgold dipping 3.8 per cent and Gold Road Resources falling 2.8 per cent.
In tech, Dropsuite surged 30.5 per cent to $5.74 after the Melbourne-based archiving software platform agreed to be acquired by Texas tech company NinjaOne for $5.90 a share, or $420 million.
The Australian dollar was buying 62.54 US cents, from 63.01 US cents at Friday's ASX close.
In cryptocurrency, Bitcoin also dropped on the US tech rout, dropping under $US100,000 for the first time in 10 days.
Around 5pm BTC had recovered to change hands just under $US102,000, or $164,500 on Australian exchanges.
ON THE ASX:
* The benchmark S&P/ASX200 index on Friday dropped 9.8 points, or 0.12 per cent, to 8,399.1
* The broader All Ordinaries fell 15.9 points, or 0.18 per cent, at 8,644.5
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 62.54 US cents, from 62.71 at the close of business Friday
* 97.29 Japanese yen, from 98.15 yen
* 59.89 euro cents, from 60.15 euro cents
* 50.23 British pence, from 50.97 pence
* 110.45 NZ cents, from 110.68 NZ cents
