A groundbreaking advancement by Chinese artificial intelligence company DeepSeek has rattled US stock markets, raising concerns about the dominance of American tech giants in the AI sector.
DeepSeek, a one-year-old startup, recently unveiled its R1 AI model, a ChatGPT-like system that operates at a fraction of the cost of models developed by OpenAI, Google, and Meta. The company revealed that it spent just $5.6 million on computing power for its base model, compared to the billions invested by US firms.
This announcement sent shockwaves through the tech industry, leading to significant declines in US stock markets on Monday. The S&P 500 dropped by 1.4%, while the tech-heavy Nasdaq plummeted by 2.3%. The Dow Jones Industrial Average remained unchanged.
Major tech stocks were hit hard. Nvidia, a leading supplier of AI chips, saw its shares fall by 12%. Meta and Alphabet, Google’s parent company, also experienced sharp declines. Other chipmakers and data center companies, including Marvell, Broadcom, Micron, and TSMC, tumbled as well.
The sell-off reflects growing investor concerns about the sustainability of US tech companies’ massive spending on AI development. Meta recently announced plans to invest over $65 billion in AI this year, while OpenAI CEO Sam Altman has emphasized the need for trillions of dollars in investment to support the industry’s growth.
DeepSeek’s achievement is particularly surprising given the US government’s efforts to restrict China’s access to high-power AI chips, citing national security concerns. Despite these restrictions, DeepSeek managed to develop its low-cost model using less advanced chips, showcasing China’s growing capabilities in the AI sector.
Marc Andreessen, a prominent tech investor and supporter of former President Donald Trump, praised DeepSeek’s breakthrough, calling it “one of the most amazing and impressive breakthroughs I’ve ever seen.”
The news also triggered a shift in investment trends, with energy companies—previously buoyed by the high electricity demands of AI data centers—experiencing sharp declines. Constellation Energy, Vistra, and GE Vernova all saw significant drops in their stock prices. Futures for natural gas and oil also fell, while Bitcoin and other cryptocurrencies tumbled.
Analysts caution that while DeepSeek’s achievement is remarkable, it may not immediately threaten the US’s leadership in AI. However, the development has sparked renewed interest in undervalued Chinese tech companies and raised questions about the future of global AI competition.
“The race is on to see which technology will prevail and how Western companies will respond,” said Michael Block, market strategist at Third Seven Capital. “Investors may have been looking for a reason to pull back, and DeepSeek provided a compelling one.”
As the AI industry continues to evolve, DeepSeek’s rise underscores the increasing competitiveness of Chinese tech firms and the potential for significant shifts in the global AI landscape.
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