Chinese AI Upstart DeepSeek Triggers Historic Tech Selloff

Chinese AI Upstart DeepSeek Triggers Historic Tech Selloff

Chinese AI startup, DeepSeek, sent shockwaves through global financial markets Monday, triggering the largest single-day loss of market value ever recorded for a U.S. company. DeepSeek, which released a highly efficient open weights AI reasoning model, sparked a massive selloff in tech stocks that saw industry giant NVIDIA shed $589 billion in market capitalization.

Key Points:

  • NVIDIA lost $589 billion in market value - the largest single-day drop in U.S. stock market history
  • DeepSeek-R1 is significantly cheaper with comparable performance to leading U.S. alternatives
  • DeepSeek surpassed ChatGPT to become the most downloaded app on Apple's App Store
  • The tech sector rout erased over $1 trillion in market value

What Happened?

DeepSeek’s founder, quant-fund chief Liang Wenfeng, claims their model, DeepSeek-R1, which is on par with OpenAI's o1, was trained on less advanced chips and at a fraction of the cost of its rivals. Specifically, DeepSeek says it trained its model with just $5.6 million in computing power, a stark contrast to the hundreds of millions or even billions spent by American tech companies on similar endeavors. Investors are now questioning the sustainability and profitability of the massive AI investments that have driven tech stock valuations to unprecedented heights.

DeepSeek’s founder, Liang Wenfeng

The Market Reaction

The market reaction was particularly severe for companies heavily invested in AI infrastructure. NVIDIA, which recently became the world's most valuable company, saw its stock plummet 17%. Other tech giants weren't spared – Oracle shares dropped 14%, while Broadcom fell 17%. The selloff rippled globally, with European chip manufacturer ASML declining 12% and Japan's SoftBank Group falling 8.3%.

Zoom In

Despite Washington's trade restrictions limiting access to advanced chips, DeepSeek did not just develop a frontier model, but it open sourced it. By Monday afternoon, DeepSeek's app had overtaken ChatGPT as the most downloaded AI application on Apple's App Store.

The Big Picture

As the dust settles, the DeepSeek-induced market rout might be remembered as a pivotal moment in the AI investment saga. Whether it leads to a recalibration of investment towards more sustainable AI tech or simply marks a temporary setback for U.S. tech dominance remains to be seen. What is clear is that the AI landscape is becoming more competitive, with cost and efficiency at the forefront of future developments.

Chris McKay is the founder and chief editor of Maginative. His thought leadership in AI literacy and strategic AI adoption has been recognized by top academic institutions, media, and global brands.

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