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China’s DeepSeek wipes off over $1 trillion in US stocks, sends Microsoft, NVIDIA & Google crashing

DeepSeek, a new AI player, made waves in the tech world this week. The launch of this Chinese-developed chatbot has caused a massive stir, and its impressive performance has raised serious questions about the future of the AI race.

Investors reacted quickly, resulting in a significant drop in global tech stocks—particularly in the US. The emergence of DeepSeek, perceived as a competitor to OpenAI’s ChatGPT, has surprised tech companies in Europe, Australia, and the US.

The tech-heavy Nasdaq Composite plunged by 3.1 percent, with over $1 trillion wiped off its value. The implications of DeepSeek’s R1 model caused a significant impact on the markets, especially for companies such as NVIDIA, which experienced a market value loss of over $700 billion. In the aftermath, Apple surpassed NVIDIA to become the most valuable company in the US, and other tech giants like Google and Microsoft also saw significant losses, as per a report by The Guardian.

A new challenger to OpenAI

DeepSeek’s AI model has astonished the tech world with its capabilities, reportedly rivaling and occasionally surpassing OpenAI’s ChatGPT, but at a significantly lower cost. The company claims to have achieved this by using less powerful chips, specifically NVIDIA’s H800, which are cheaper to produce. The success of DeepSeek’s AI assistant—topping the app store charts in both the US and UK—has prompted some investors to reconsider their faith in US-led AI companies. The fact that DeepSeek was able to develop such an advanced model without access to the most cutting-edge US technology has raised eyebrows and triggered doubts about the effectiveness of US sanctions to curb China’s tech growth.

Despite the restrictions, DeepSeek was able to build an impressive AI model using resources that were less expensive and less powerful than what competitors typically rely on. This has left many questioning the need for considerable investments in AI infrastructure and technology, mainly when results can be achieved with fewer resources.

The impact on AI investment strategies

What’s grabbed my attention is the cost difference. DeepSeek reportedly spent just $5.6 million on developing its R1 model, which is far cheaper than the $100 million to $1 billion estimated to create similar models in the West. DeepSeek’s approach challenges the traditional model of AI development, where companies invest billions in top-tier chips and hardware to develop robust AI systems. DeepSeek has made a strong case for low-cost, high-performance AI by using cheaper chips and focusing on innovative algorithms.

This development has raised questions about the sustainability of AI spending in the West. Goldman Sachs had previously warned investors about the potential overvaluation of AI investments, and DeepSeek’s low-cost success has only intensified the debate. The AI sector, powered by massive investments in recent years, may need to reassess whether these vast sums deliver the promised returns.

A global ripple effect

The effects of DeepSeek’s rise weren’t just felt in the US; markets across the globe saw a ripple effect. European and Asian stocks also hit, with companies like ASML and Siemens Energy seeing their values drop. Even NVIDIA’s suppliers in Japan, including Disco and Advantest, saw losses.

Despite the negative impact on the market, some experts see DeepSeek’s success positively. The company’s decision to make its models open source could democratize access to advanced AI technology. By freeing the models, DeepSeek allows smaller companies, researchers, and hobbyists to experiment and innovate in AI without needing vast financial resources.

The launch of DeepSeek has disrupted the AI landscape, proving that significant strides in AI can be made without substantial financial backing. While the US may still be a key player, this new Chinese challenger has demonstrated that innovation in AI doesn’t always need to come with a hefty price tag.

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