Markets may have just experienced their second DeepSeek shock, this time thanks to a Chinese AI lab named after a Pink Floyd album

On Thursday, Moonshot AI, a Beijing-based AI startup, unveiled the latest version of its Kimi large language model, which promises performance close to Anthropic’s Fable 5—perhaps the most powerful publicly available model today—at a fraction of the cost.

Kimi K3, the largest open-weight model ever released, performed “competitively” with Fable 5, and “substantially outperformed” Anthropic’s Opus 4.8, and OpenAI’s GPT 5.6 Sol, according to Moonshot. The company’s officially-released benchmarks consistently rank K3 among the top three AI models; one independent benchmark from Arena.AI even put K3 as the best model currently available, ahead of Anthropic.

Many observers, including Anthropic CEO Dario Amodei, didn’t expect a Chinese AI lab to release a model that could approach the U.S.’s best offerings for another six months. Tesla CEO Elon Musk, for example, suggested it might happen by the first quarter of next year. K3’s launch rapidly shrank that timeline and underscores just how quickly Chinese AI developers are closing the performance gap with their U.S. rivals. 

“The AI ecosystem in China is probably much better than people thought,” says Paul Triolo, a partner at DGA-Albright Stonebridge Group.

Moonshot AI has priced K3 at $15 per million output tokens, the bits of information processed and generated by a large language model. That’s cheaper than Fable 5, which costs $50 for the same level of output.

Moonshot’s launch seemed to rattle investors who interpret the new model as undermining the conventional wisdom that U.S. firms can maintain their extended lead by simply outspending Chinese competitors on computing power.

A semiconductor selloff was already underway, but the K3 debut seemed to make things worse. Leading chipmaker Taiwan Semiconductor Manufacturing Company fell by 7% on Friday, despite reporting a 77% jump in quarterly operating profit. SoftBank—often seen as a proxy for OpenAI—fell by 9.0%. Z.ai, a Chinese AI startup that has released a competing model to Moonshot’s Kimi, plunged by........

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