Chinese AI startup DeepSeek has shaken the global tech industry with the release of its latest AI model, which quickly climbed to the top of Apple’s App Store charts.
- The model, praised for its affordability and functionality, directly challenges costlier AI technologies from companies like OpenAI, Microsoft, Meta Platforms, and Alphabet.
- The success has raised concerns about the massive investments made by U.S. firms into AI, potentially derailing the industry’s bullish outlook.
Tech Stocks Face Historic Losses
DeepSeek’s release triggered a sharp sell-off in U.S. and European technology stocks:
- Nasdaq 100 futures dropped by as much as 5.2% in overnight trading before stabilizing to a 3.9% loss.
- Nvidia Corp., the world’s highest-valued company, saw its shares drop more than 10% in premarket trading, wiping out an estimated $340 billion in market value.
- European tech stocks followed suit, with ASML Holding NV falling as much as 12%.
- The combined losses of the Nasdaq 100 and Europe’s Stoxx 600 technology sub-index could total $1.2 trillion.
What Makes DeepSeek’s AI Different?
Founded by quant fund chief Liang Wenfeng, DeepSeek’s AI model is widely regarded as a breakthrough innovation:
- The app showcases its reasoning and work process while addressing user queries, earning praise for its transparency.
- Prominent investor Marc Andreessen described it as “one of the most amazing and impressive breakthroughs.”
Unlike AI models from Silicon Valley giants, DeepSeek was developed using open-source technology, challenging the assumption that U.S. dominance in AI requires significant capital expenditure and exclusive chip access.
Impact on Global Markets
While U.S. and European tech stocks struggled, Chinese markets reacted positively:
- AI-related stocks in China, such as Merit Interactive Co., surged to their daily trading limits.
- The Hang Seng Tech Index rose 2% ahead of the Lunar New Year holidays.
Industry Experts Weigh In
DeepSeek’s success raises critical questions about the future of AI:
- Vey-Sern Ling, managing director at Union Bancaire Privee, said:“DeepSeek shows that it is possible to develop powerful AI models that cost less. This disrupts the investment case for the entire AI supply chain, driven by high spending from a handful of hyperscalers.”
- Nirgunan Tiruchelvam, head of consumer and internet at Aletheia Capital, added:“DeepSeek is deeply problematic for the thesis that Silicon Valley’s capital-heavy approach is the best way forward.”
- Charu Chanana, chief investment strategist at Saxo Markets, noted:“While current leaders like Nvidia have a strong foothold, the emergence of DeepSeek shows that AI dominance cannot be taken for granted.”
Valuations Under Scrutiny
The sell-off highlighted growing unease over tech sector valuations:
- The Nasdaq 100 is trading at 27 times forward earnings, higher than its three-year average of 24.
- Nvidia trades at 33 times forward earnings, slightly above its three-year average.
A Shift in the AI Landscape
DeepSeek’s rise challenges the narrative that China lags behind the U.S. in AI development. Despite trade restrictions limiting China’s access to cutting-edge chips, the startup demonstrated the power of accessible, open-source technology.
With major earnings reports from Apple and Microsoft on the horizon, this week is set to test investor confidence in the AI-driven rally that has defined the sector in recent years.
