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Tech stocks were hammered today, shaking global markets, as major big tech players, such as chipmaker Nvidia, Meta, Microsoft, and Oracle were hit by a wave of investor panic following the unveiling of China's DeepSeek artificial intelligence model.
The low-cost Chinese AI model, a rival of OpenAI's ChatGPT and Google's Gemini AI, was launched last week and very soon has become the most-downloaded app on Apple Store in the U.S. The Chinese AI model has been hailed as a potential game-changer, and has raised serious concerns over the future of U.S. dominance in the ongoing AI boom.
The sell-off on Wall Street was steep. The Nasdaq Composite slid by 3.1%, the S&P 500 dropped 1.8%, and Dow Jones futures tumbled sharply. Nvidia, the dominant AI chipmaker, plunged by 11% in early trading, while Microsoft fell 3.8%, Meta by 3.1%, and Alphabet (Google) dropped 3.3%.
As per Reuters, investors are clearly rattled by the rise of DeepSeek, which was developed for a fraction of the cost of its U.S. competitors, reportedly under $6 million, compared to billions spent by major tech firms in the U.S.
The DeepSeek-R1 model, an open-source chatbot, has quickly become the most downloaded free app in the U.S., surpassing ChatGPT. In fact, Donald Trump supporter and Silicon Valley venture capitalist, Marc Andreessen has even described DeepSeek-R1 as AI’s “Sputnik moment,” referencing the shock the U.S. felt when the Soviet Union launched its first satellite in 1957. Andreessen praised the model as “one of the most amazing breakthroughs” in AI, stating that its open-source nature makes it a "gift to the world."
This development has sparked fears among investors that U.S. companies, particularly those in the AI hardware and software sector, might face stiffer competition and margin pressures. As per Reuters, analysts have also raised questions about how the low-cost, high-performance model might reshape the industry, especially given its ability to perform tasks like math, coding, and natural language reasoning on par with OpenAI’s latest models.
The emergence of DeepSeek also casts a shadow over the costly ongoing AI arms race, where tech giants have been pouring billions into AI research and development. Companies like Nvidia have seen stock prices soar by over 200% in the past 18 months, but with DeepSeek offering similar capabilities at a fraction of the cost, the future of U.S. investment in AI is now in question.
The shockwaves were felt beyond the U.S. borders as well. In Europe, Dutch chip equipment maker ASML saw a nearly 7.5% drop in its stock, while Siemens Energy, which manufactures AI-related hardware, plummeted by nearly 18%. In Japan, SoftBank Group, a key investor in AI startups, fell more than 8%.
DeepSeek’s debut comes amid escalating tensions between the U.S. and China, especially concerning advanced AI chips. With U.S. restrictions on the sale of cutting-edge semiconductor technology to China, Chinese AI developers have had to innovate, leveraging open-source tools and collaborating on new AI models that consume significantly less computing power. This has led to AI models that are cheaper and more efficient, disrupting the status quo in the global tech market.
The fallout from this development has already been profound, with investors flocking to safer assets. U.S. Treasury yields have dropped, and currencies like the Japanese yen and Swiss franc have surged against the dollar.
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