By Aleke Francis AO
US stocks took a steep hit on Monday after Chinese AI startup DeepSeek unveiled a revolutionary AI model that challenged the dominance of American technology companies. As reported by CNN, the announcement of DeepSeek’s R1 model, which rivals ChatGPT in capabilities while operating at a fraction of the cost, sent shockwaves through the tech sector and triggered a broad market selloff.
DeepSeek, a one-year-old company, revealed that it had developed its AI model with a mere $5.6 million investment in computing power. This pales in comparison to the billions spent by major US players like OpenAI, Meta, and Google on their AI technologies. The revelation not only cast doubt on the perceived technological superiority of American companies but also raised concerns about the efficiency and profitability of their massive expenditures.
The impact on Wall Street was immediate. The tech-heavy Nasdaq dropped by 3.5%, while the broader S&P 500 fell 1.8%. Nvidia, the leading supplier of AI chips whose stock has soared in recent years, saw its shares plummet by 18%. Other tech giants, including Meta and Alphabet, experienced sharp declines as well. Even energy companies, which have benefited from the AI-driven demand for electricity, suffered significant losses, with Constellation Energy falling 21% and competitors like Vistra and GE Vernova dropping over 20%.
The announcement also raised questions about how DeepSeek achieved such a feat despite US-imposed restrictions on advanced AI chips to China. The startup reportedly developed its model using less powerful hardware, a testament to its innovative approach. Marc Andreessen, a prominent tech investor, described DeepSeek’s breakthrough as “one of the most amazing and impressive advancements” he has ever witnessed.
Analysts are now questioning whether US tech companies can maintain their lead in the AI race. Keith Lerner, an analyst at Truist, pointed out that US dominance in AI has been a key driver of market performance. “The DeepSeek model rollout is leading investors to question the lead that US companies have, the sustainability of their spending, and whether it will translate into profits or overspending,” he said.
The news has also sparked a shift in investment strategies. Chinese tech companies, long undervalued due to geopolitical concerns, are now gaining attention. Charu Chanana, Chief Investment Strategist at Saxo, suggested that DeepSeek’s rise could reignite interest in Chinese AI firms, offering an alternative growth narrative for global investors.
However, some experts caution against overreacting to a single breakthrough. Michael Block, a market strategist at Third Seven Capital, noted that the market may have been looking for a reason to pull back after a period of complacency. “Time will tell if the DeepSeek threat is real. The race is on to see how Western companies will respond and evolve,” he said.
While DeepSeek’s achievement is remarkable, skeptics argue that it remains to be seen whether the R1 model can compete in industries requiring massive infrastructure investments. Giuseppe Sette, President of Reflexivity, emphasized that the US still has a significant edge in AI talent and resources. “The US remains the most promising ‘home turf’ for the emergence of self-improving AI,” he stated.
For now, DeepSeek’s breakthrough has shaken confidence in the tech sector, and its long-term implications could redefine the global AI landscape. Investors will be closely watching how US companies respond to this unexpected challenge.
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