A Chinese artificial intelligence startup called DeepSeek has sent shockwaves through the tech industry and financial markets. The company revealed its ChatGPT-like AI model, R1, which boasts similar capabilities to leading models from US companies like OpenAI, Google, and Meta, but at a fraction of the cost. DeepSeek reported spending just $5.6 million on computing power for its base model.
In comparison, US companies have spent hundreds of millions or even billions of dollars on their AI technologies. This stunning revelation led to a sharp drop in US stocks on Monday, with the tech-heavy Nasdaq plunging by 3.1% and the broader S&P 500 falling by 1.5%. Nvidia, the leading supplier of AI chips, was hit particularly hard.
The company lost nearly $600 billion in market value, the most ever lost by a stock in a single day. Other major tech companies, including Meta and Alphabet, also saw significant declines.
deepSeek’s market impact shocks investors
The news has led investors to question the lead that US companies have in the AI industry. Keith Lerner, an analyst at Truist, said, “The bottom line is the US outperformance has been driven by tech and the lead that US companies have in AI. The DeepSeek model rollout is leading investors to question the lead that US companies have, how much is being spent, and if that spending will lead to profits or overspending.”
The impact of DeepSeek’s announcement was felt beyond the tech sector.
Energy companies, which had been trading higher due to the massive amounts of electricity needed for AI data centers, also saw significant declines. Cryptocurrencies followed the downward trend as well. While some industry experts advise caution, the achievement by DeepSeek is undeniably impressive.
Marc Andreessen, one of the world’s leading tech investors, called it “one of the most amazing and impressive breakthroughs I’ve ever seen.”
The coming weeks will be crucial as tech companies report their earnings and respond to the DeepSeek revelation. Investors will be closely watching to see how the industry adapts to this new challenge from China.
