A stunning advancement from a Chinese artificial intelligence startup called DeepSeek has shaken the US stock market, sending tech stocks into a steep decline. US markets dropped sharply on Monday, with chipmaker Nvidia losing nearly $600 billion in market value, after the surprising announcement. DeepSeek, a one-year-old startup, revealed a ChatGPT-like AI model called R1, operating at a fraction of the cost of existing models from US giants like OpenAI, Google, and Meta.
The company claimed it spent only $5.6 million on computing power for its base model, compared to the hundreds of millions or billions of dollars spent by US companies on their AI technologies. The news caused significant turbulence in the tech sector. The tech-heavy Nasdaq plunged by 3.1%, while the broader S&P 500 fell by 1.5%.
The Dow, however, saw a slight increase of 0.7%, buoyed by health care and consumer companies that could be affected by AI advances. Meta and Google had been planning significant investments in AI, with Meta announcing it would spend over $65 billion this year alone. The dramatic capabilities demonstrated by DeepSeek raised concerns about the competitive edge of American tech companies.
“DeepSeek’s achievement is one of the most amazing and impressive breakthroughs I’ve ever seen,” said Marc Andreessen, one of the world’s leading tech investors. The impressive capabilities of DeepSeek were even more surprising given the company’s use of underpowered AI chips. The market reacted harshly to the news, with Nvidia, the leading supplier of AI chips, losing 17% of its value.
DeepSeek disrupts US tech stocks
Other tech companies such as Marvell, Broadcom, Micron, and TSMC also experienced significant declines. This fluctuation dragged down the broader stock market since tech constitutes about 45% of the S&P 500.
Analysts believe that the rollout of DeepSeek’s model is leading investors to question the spending and profitability of US companies’ AI endeavors. Investors are now taking a closer look at Chinese AI companies. “Chinese tech companies, including new entrants like DeepSeek, are trading at significant discounts due to geopolitical concerns and weaker global demand,” said Charu Chanana, chief investment strategist at Saxo.
The news also spurred a change in investments away from technology companies, impacting energy companies which had benefited from the high electricity demands of AI data centers. For example, Constellation Energy, the firm behind the planned revival of the Three Mile Island nuclear plant for AI, fell 21% on Monday. Some market analysts caution that while DeepSeek’s achievements are noteworthy, it might be too early to signal a shift in AI leadership.
The company’s claims about cost savings and efficiency have yet to be verified by other industry experts. “Time will tell if the DeepSeek threat is real,” said Michael Block, market strategist at Third Seven Capital. “The market selloff may be a bit overdone, or perhaps investors were looking for an excuse to sell.”
Despite the turbulence, the United States remains a key player in AI development.
“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. Investors and analysts will be closely monitoring responses from major tech companies in the upcoming weeks as they report their earnings and strategize their AI developments in light of DeepSeek’s breakthrough.
