DeepSeek, a Chinese AI company, has announced that it can match the abilities of cutting-edge chatbots while using a fraction of the specialized computer chips that leading AI companies rely on. This development has led investors to rethink the lofty valuations of companies like Nvidia, whose equipment powers the most advanced AI systems, and the enormous investments companies like Alphabet, Meta, and OpenAI make to build their businesses. On Monday, the S&P 500 index fell 1.5 percent, and the tech-heavy Nasdaq dropped 3.1 percent.
Nvidia was hit particularly hard, plunging 16.9 percent and losing roughly $600 billion in market value. The decline in tech stocks also affected market indexes in Europe and Japan. Even the shares of an energy company dependent on supplying electricity to data centers that powered AI technology fell by one-fifth of their value.
DeepSeek’s ripple in AI investments
Excitement over the prospects for AI has helped send technology stocks soaring over the past year, but concerns have been rising, too. Investors have become increasingly worried that the small cohort of tech companies that drove the broader market’s gains won’t live up to the lofty expectations that their high valuations suggest.
The pain was concentrated at companies at the forefront of the AI boom, including the multitrillion-dollar behemoths like Alphabet and Microsoft. Additionally, chipmakers such as Arm, Broadcom, Micron, and semiconductor equipment specialists like ASML also saw significant declines. As new competition emerges from Chinese AI companies, U.S. tech giants face increased scrutiny and pressure from investors.
This shift in the AI landscape has the potential to redefine the market and force major players to reassess their strategies and valuations.
