By Emmanuel Nduka
Investors across global markets were rattled Monday as the rise of DeepSeek, a Chinese AI start-up, cast doubts over the dominance of established AI giants like Nvidia.
The start-up launched a low-cost AI assistant last week, claiming it uses far less data and costs a fraction of the price compared to current services.
And by Monday, DeepSeek’s assistant had surpassed OpenAI’s ChatGPT in app downloads on Apple’s App Store, sparking a massive sell-off in tech stocks worldwide.
The shockwave sent the tech-heavy Nasdaq plummeting by more than 3%, with Nvidia suffering the heaviest blow.
Shares of the AI chip giant tumbled over 17%, pushing the company on track for a loss exceeding $600 billion in market value—the largest single-day loss in Wall Street history, more than double the previous record set just last September.
Other tech companies weren’t spared, as Broadcom dropped 18% and Microsoft, which backs ChatGPT, saw a 2.3% decline. Google parent Alphabet fell 3.4%.
In Europe, tech stocks took a hit as well, with the Philadelphia semiconductor index diving over 10%, marking its biggest percentage drop since March 2020. The sell-off, which began in Asia with a notable 8.3% drop in SoftBank Group, rippled through Europe and into the U.S., where investors sought refuge in safer assets like government bonds.
Brian Jacobsen, chief economist at Annex Wealth Management, warned that if DeepSeek’s model proves to be a true “better mousetrap,” it could change the AI landscape completely. “It could disrupt the entire AI narrative that has helped drive markets in the last two years,” Jacobsen said. This disruption could reduce the need for expensive chips, large-scale data centers, and energy-heavy power production for AI models.
On the other hand, it could make AI more accessible, accelerating the development of a wide array of applications.
The AI hype has fueled huge capital inflows into technology stocks, with valuations skyrocketing. Just last week, U.S. AI-related stocks had seen a surge after President Donald Trump’s announcement of a $500 billion AI infrastructure plan through the Stargate joint venture, with backing from SoftBank, OpenAI, and Oracle. But this week’s turbulence, which included a 14% drop in Oracle’s shares, highlighted the growing concerns about the future of AI development.
DeepSeek, founded by Liang Wenfeng, co-founder of the quantitative hedge fund High-Flyer, has caused a stir with its remarkably affordable AI models. Its DeepSeek-V3 model, which launched on January 10, was trained using Nvidia’s less-powerful H800 chips, costing under $6 million.
The DeepSeek-R1, released last week, is 20 to 50 times cheaper than OpenAI’s models, depending on the task. The dramatic cost-efficiency has Silicon Valley executives and engineers hailing DeepSeek as the breakthrough the AI world has been waiting for.
Marc Andreessen, the Silicon Valley venture capitalist, called DeepSeek’s R1 model an “AI Sputnik moment,” drawing comparisons to the Soviet Union’s first satellite launch, which sparked the space race. “DeepSeek R1 is one of the most amazing breakthroughs I’ve ever seen,” Andreessen said, noting that the model’s open-source nature was a profound gift to the world.
Despite the enthusiasm, some analysts, like Daniel Morgan from Synovus Trust Company, warned that the sell-off was an overreaction. He noted that DeepSeek’s model is geared towards mobile phones and PCs, competing with ChatGPT, Meta, and Alphabet’s Gemini, while the true profits in AI lie in providing chips for data centers—a space dominated by companies like Nvidia, AMD, and Broadcom.
Nevertheless, Nvidia’s share price, which had soared 171% in 2024 and 239% in 2023, has now fallen over 12% year-to-date, leaving many investors questioning the future of AI investments. Alongside Nvidia, other stocks like Vertiv Holdings, which builds data-center infrastructure, saw steep declines of over 30%. Investors are also offloading shares in power utilities, which had previously surged in anticipation of higher demand for energy from data centers.
With global markets still reeling from DeepSeek’s unexpected rise, the long-term impact on AI and tech markets remains uncertain. However, one thing is clear: the landscape of artificial intelligence may never be the same.
Reuters
