Millions of pension savers could risk significant losses in their retirement pots after a sharp downturn in the US tech sector sparked global market instability, analysts warn.

The downturn was triggered by the emergence of a new Chinese Artificial Intelligence (AI) firm, which sent tech shares plunging on Monday, raising concerns about a potential knock-on effect on pensions heavily tied to the sector.

Nigel Green, CEO of the financial advisory and asset management company deVere Group, warned: “The sharp declines in the S&P 500 and other tech-heavy indices present a significant challenge for UK pension funds, many of which have considerable exposure to US equities - particularly in the tech sector.”

The Chinese firm, DeepSeek, claimed to have developed a low-cost AI model for just $6million (£4.8million). This significantly undercuts the billions spent by competitors like OpenAI, which rely on advanced Nvidia computer chips to train its systems.

The announcement triggered a dramatic sell-off in US tech stocks, with Nvidia losing 17% of its value. This wiped a staggering $500billion (£473billion) from its market capitalisation, marking the largest single-day loss in Wall Street history. Other tech giants, including Microsoft, Alphabet, and Apple, also suffered sharp declines, amplifying fears of instability in the sector.

Mr Green said: “The sector has long been a key driver of returns, with pension funds benefiting from the dominance of US giants such as Apple, Alphabet, and Microsoft.

“However, with mounting pressure from new competitors like DeepSeek and broader market uncertainty, these stocks are now facing volatility that could impact long-term pension growth.”

UK pension funds are generally diversified to minimise exposure to sector-specific risks, which helps protect against shocks. However, the scale of the impact on tech stocks raises concerns.

Nvidia, the market leader in AI chip manufacturing, bore the brunt of the downturn, but the broader tech sector, including the NASDAQ and S&P 500 indices, saw declines of 3% and 1.5%, respectively.

Mr Green said: "UK pension funds are deeply integrated into global markets, and a sustained sell-off in US tech could erode the value of pension investments, potentially leading to lower returns for millions of savers.”

Simon Heath, partner at UK investment firm Heligan Group, said: “Despite the recent pricing correction in US technology stocks, they continue to feel overvalued, priced off future growth rather than current cash conversion.

“Could DeepSeek’s impact on the AI sector have wider implications on technology pricing? Yes, there is likely to be further pricing correction across the wider technology sector, particularly in the US.”

Mr Heath urged pension savers to review their portfolios. He said: “Any pension savers that are concerned around recent events in the US stock market should speak with their pension provider or IFA to understand how exposed they are to the technology sector and evaluate their risk profile to this sector given the bull market can’t last forever.”