Semiconductor stocks staged an impressive recovery on Monday after an early selloff, showing that investor confidence in the AI chip industry remains strong despite growing competition from China.

The sector initially came under pressure after Alibaba introduced its latest AI model, Qwen3.8-Max, while reports suggested that DeepSeek's newest AI model can be run at a fraction of the cost of some leading Western models. The news sparked concerns that Chinese AI companies could increase competition in the global market.

However, those worries quickly faded as the broader stock market rallied.

The PHLX Semiconductor Index recovered from a decline of more than 2%, while many leading chipmakers erased their early losses. Nvidia climbed around 3% after trading lower earlier in the day, as investors continued to bet on its long term leadership in AI hardware. $AMD also turned positive, gaining more than 1% ahead of its upcoming earnings report.

Intel, Marvell, and Qualcomm all finished higher, reflecting renewed buying interest across the chip sector. Meanwhile, memory giants Micron Technology and $SKHYNIX SK Hynix saw only modest declines, limiting their losses despite the early selling pressure.

The market's reaction shows that investors still have confidence in semiconductor companies, even as China's AI industry continues to make rapid progress. While cheaper AI models may increase competition, demand for advanced chips remains strong, keeping the long term outlook for the sector positive.