Chinese AI startup DeepSeek sparks record U.S. stock market plunge
NEW YORK, UNITED STATES — Global investors reacted swiftly to the introduction of a new, low-cost AI model by Chinese startup DeepSeek, triggering a selloff in tech stocks on Monday.
AI leader Nvidia experienced a historic loss, shedding $593 billion in market value— the largest one-day loss ever recorded on Wall Street.
This drop came after DeepSeek launched its free AI assistant last week, which quickly surpassed the download numbers of U.S. counterpart, ChatGPT.
Historic market reaction
The impact rippled globally, starting from a selloff in Asia and moving through European markets.
The tech-heavy Nasdaq index fell by 3.1%, with Nvidia as the most significant drag, seeing a nearly 17% drop in its shares. Other major tech players like Broadcom and Microsoft also faced declines. The Philadelphia semiconductor index saw its largest percentage drop since March 2020.
Expert analysis and strategic shifts
Industry experts like Brian Jacobsen of Annex Wealth Management suggest that DeepSeek’s AI model could reduce the demand for traditional tech infrastructure, which has been a critical driver of recent market growth.
“It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centers,” he said.
According to data science enthusiast Steve Nouri, DeepSeek has achieved what was once thought impossible by Silicon Valley—for just $6 million. This contrasts starkly with OpenAI’s GPT-4, which cost over $600 million to train. Furthermore, DeepSeek’s R1 model operates at a cost of less than $4 per million tokens, compared to OpenAI’s $100+.
“Global attention shifts to China’s AI dominance. What if we don’t need that many GPUs or even electricity to build better [models?],” he said on LinkedIn.
Meanwhile, investments were still being announced, with SoftBank committing $19 billion to an AI infrastructure project just days before the selloff.
OpenAI’s response to DeepSeek
Sam Altman, CEO of OpenAI, acknowledged the efficiency and impact of DeepSeek’s R1 model, stating it is “an impressive model, particularly around what they’re able to deliver for the price.”
He expressed enthusiasm about the competition, noting it as invigorating and confirming OpenAI’s commitment to advancing its research roadmap. Altman emphasized the importance of computing power and hinted at exciting developments in next-generation AI models, underscoring his anticipation for delivering artificial general intelligence (AGI) and beyond.
deepseek's r1 is an impressive model, particularly around what they're able to deliver for the price.
we will obviously deliver much better models and also it's legit invigorating to have a new competitor! we will pull up some releases.
— Sam Altman (@sama) January 28, 2025
DeepSeek, based in Hangzhou and led by Liang Wenfeng, has impressed many with its cost-efficient and open-source models, DeepSeek-V3 and DeepSeek-R1. DeepSeek-R1 model is said to be 27 times cheaper than OpenAI’s models. DeepSeek’s models promise to deliver high-quality AI capabilities at a fraction of the cost and energy consumption of existing services.
Marc Andreessen, a prominent Silicon Valley investor, praised the R1 model as a “Sputnik moment” for AI, signaling a potential shift in the global tech landscape.
Despite the market turmoil, some analysts view the downturn as an opportunity to buy into high-quality tech stocks at lower prices, suggesting that the core value of companies like Nvidia remains strong due to their role in powering data centers.
