Chinese AI startup DeepSeek has ignited significant turbulence in global technology markets after its app soared to the top of the Apple (NASDAQ:AAPL) App Store and demonstrated advanced capabilities similar to OpenAI’s ChatGPT and Meta’s Llama. Its cost-efficient development and use of reduced-capability Nvidia chips have drawn attention and raised questions about its potential to disrupt the competitive AI landscape. The emergence of DeepSeek has triggered a major sell-off in U.S. tech markets, with investors reassessing the dominance of American tech giants.
Why did U.S. tech stocks tumble?
The Nasdaq Composite, heavily weighted with tech stocks, dropped by 3%, nearly erasing its yearly gains. Nvidia, a prominent chipmaker in the AI sector, faced severe losses, with its stock plummeting nearly 17%, marking its worst day since March 2020. Approximately $600 billion in market value was wiped out across the tech sector, reducing Nvidia CEO Jensen Huang’s net worth by $20 billion in a single day. Other major AI players, including Google, Microsoft (NASDAQ:MSFT), and Palantir, also suffered substantial losses, though Meta experienced gains after increasing its annual capital expenditure forecast to as much as $65 billion.
Is DeepSeek reshaping AI competition?
DeepSeek’s success has sparked debate over its influence on the global AI landscape. While the app’s efficiency and innovative use of existing AI models have been praised, WedBush analyst Dan Ives cautioned that it is not a “black swan” event for the AI sector. He argued that advancements like DeepSeek might accelerate the broader AI ecosystem rather than destabilize it. Nvidia also commented on the situation, stating,
“DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling…It illustrates how new models can be created using that technique.”
Earlier reports on DeepSeek highlighted its use of export-compliant components and its ability to leverage pre-existing computational frameworks. While this approach provides cost advantages, concerns have been raised about its scalability and whether it can match the robustness of U.S.-based systems like OpenAI’s GPT models over time. These questions remain pivotal in evaluating DeepSeek’s long-term impact.
The tech market turbulence extended beyond AI, affecting nuclear power plant operators like Constellation Energy and Vistra, which saw their stocks decline due to concerns about reduced energy demands from AI companies. Simultaneously, Bitcoin briefly dipped below $100,000 before recovering, signaling broader investor uncertainty. Defensive stocks like Procter & Gamble and Coca-Cola gained traction as investors shifted their focus toward more stable options, helping the Dow Jones Industrial Average rise by 289 points.
Bond markets also reacted, with the 10-year Treasury yield dropping to its lowest level since December 2024. The tech downturn underscores the interconnectedness of financial markets and the influence of rapid technological developments on global economies.
The emergence of DeepSeek raises important questions about the future of AI dominance. While it showcases the potential of cost-effective innovation, its broader implications for market dynamics and technological leadership remain uncertain. Investors and industry leaders may need to evaluate whether DeepSeek represents a significant shift in AI competitiveness or an isolated development that complements existing advancements. For now, its ripple effects across financial and tech industries highlight the need for ongoing scrutiny and strategic adjustments.
