US stock markets plunged sharply on Monday, with chip giant Nvidia seeing its market value drop by nearly $600 billion, as a surprise announcement from a Chinese AI startup, DeepSeek, raised alarm bells across the tech sector. The news of DeepSeek’s stunning progress has caused analysts and investors to rethink the dominance of American companies in the artificial intelligence space.
DeepSeek, a one-year-old Chinese AI company, unveiled its revolutionary AI model, R1, last week, which operates similarly to ChatGPT but at a fraction of the cost of leading models from OpenAI, Google, and Meta. The company revealed that it spent just $5.6 million on the computing power for its base model, a stark contrast to the billions that US companies have poured into their own AI research and development.
The announcement sent shockwaves through the markets, particularly hitting the tech-heavy Nasdaq, which dropped by 3.1%. The broader S&P 500 fell 1.5%, while the Dow Jones, bolstered by health care and consumer stocks, rose by 0.7%.
The biggest casualty was Nvidia, which supplies much of the world’s AI chips. Nvidia shares plummeted nearly 17%, wiping out $588.8 billion in market value—the largest one-day loss ever recorded by a public company. For context, Nvidia’s loss exceeded the market value of all but 13 companies globally. At one point, Nvidia had been the most valuable company in the world, but it now sits behind Apple and Microsoft.
Other tech giants, including Meta (META) and Alphabet (GOOGL), also saw their stocks dip. Competitors of Nvidia, such as Marvell, Broadcom, Micron, and TSMC, also experienced heavy losses.
DeepSeek’s breakthrough raises serious questions about the future of AI and the competition between the US and China. Marc Andreessen, a prominent tech investor, described DeepSeek’s achievement as “one of the most amazing and impressive breakthroughs I’ve ever seen” in a post on X (formerly Twitter). The timing of this development is particularly surprising given the US government's restrictions on Chinese access to high-power AI chips, aimed at safeguarding national security. DeepSeek’s ability to build a low-cost AI model using underpowered chips could signal a new era in AI development, potentially disrupting the balance of power in the sector.
The news from DeepSeek sparked a significant sell-off in tech stocks, especially those tied to the AI industry. As tech companies make up a large portion of the S&P 500 index, the broader market felt the weight of these losses, despite some sectors like healthcare and consumer goods seeing gains.
"The bottom line is the US outperformance has been driven by tech and the lead that US companies have in AI," said Keith Lerner, analyst at Truist. "The DeepSeek model rollout is leading investors to question the lead that US companies have and how much is being spent and whether that spending will lead to profits."
The DeepSeek news also caused a significant shift in investment trends, with non-tech companies, particularly energy firms that supply electricity to AI data centers, suffering major losses. Companies like Constellation Energy and Vistra saw their stock prices plummet, as did energy futures like natural gas and oil. Cryptocurrencies, including Bitcoin, also dropped.
Despite the initial shock to the market, some experts remain sceptical about the long-term implications of DeepSeek’s AI breakthrough. “Time will tell if the DeepSeek threat is real — the race is on as to what technology works and how the big Western players will respond and evolve,” said Michael Block, market strategist at Third Seven Capital.
Although DeepSeek's model has raised eyebrows, questions remain about its scalability and its ability to compete with the massive AI infrastructure built by American companies. The R1 model may be a competitor to consumer-focused AI models like ChatGPT, but its ability to handle more complex AI tasks for industries that require massive infrastructure investments has yet to be proven.
“Thanks to its rich talent and capital base, the US remains the most promising ‘home turf’ from which we expect to see the emergence of the first self-improving AI,” said Giuseppe Sette, president of AI market research firm Reflexivity.
In the coming weeks, the market will closely monitor how major US tech firms respond to this new competition from DeepSeek, as their strategies could determine the future trajectory of the AI sector.
A new and unexpected challenger has emerged in the artificial intelligence race, and it's stirring up global markets. DeepSeek, a Chinese AI startup, has made waves with its groundbreaking advancements, leaving the world’s tech giants scrambling to respond.
The centre of attention is DeepSeek’s R1 model, a highly sophisticated AI system designed to tackle complex problems. This technological marvel has propelled DeepSeek’s app to the top of the iPhone download charts in the U.S., signalling a significant rise in its influence on the global AI landscape.
What is rattling investors isn’t just DeepSeek’s rapid success; it’s how the company achieved it. Traditionally, it has been believed that the development of powerful AI systems requires access to the most advanced and expensive computer chips. This assumption has justified billions of dollars in investment by American tech giants such as Alphabet and Meta.
However, DeepSeek has shattered these expectations. Lacking the vast financial resources of U.S. tech behemoths, the company has instead relied on older, less powerful chips and combined them with innovative training methods. The outcome? AI performance levels that rival industry leaders, but without the hefty price tag.
The company’s reliance on less advanced chips isn’t entirely by choice. U.S. export controls have restricted Chinese firms’ access to cutting-edge semiconductor technology, citing national security concerns. Despite these limitations, DeepSeek has managed to innovate and achieve high performance, proving that creative solutions can sometimes outpace financial resources.
Behind this revolution is Liang Wenfeng, a Chinese hedge fund manager. His firm, High-Flyer, valued at $8 billion, is where DeepSeek was born, stemming from its AI research division. Under Wenfeng’s leadership, DeepSeek has quickly gained global recognition and is now seen as one of the most exciting new players in the AI field.
The debate over DeepSeek’s impact is ongoing. While the company has proven its ability to significantly reduce AI development costs, some analysts remain sceptical about the broader implications for the industry. Stacy Rasgon, a semiconductor analyst at Bernstein, stated, “AI demand continues to grow, and companies will still require significant infrastructure.”
Despite the reservations, DeepSeek’s innovation has certainly shaken up the tech world, leaving investors and analysts alike pondering what comes next for the future of AI.
