Following a nearly flawless year-to-date performance, the financial world was shaken yesterday as U.S. stocks suffered a loss exceeding $1 trillion. In the wake of the rapid rise of China’s AI chatbot DeepSeek, U.S. tech giant Nvidia saw a notable drop in its market value, losing over a sixth of its worth and causing unease among investors in both the U.S. and Europe.
DeepSeek, a Chinese AI chatbot reportedly developed at a fraction of the cost of its competitors, was launched last week and has quickly become the most downloaded free app in the United States. The impact was palpable, as Nvidia and other tech companies linked to AI, including Microsoft and Google, experienced substantial drops in their valuations on Monday in light of DeepSeek’s swift ascension.
DeepSeek’s popularity impacts U.S. stock markets
DeepSeek’s rapid rise has shaken stock markets across the United States. Stocks fell sharply on Monday as investors abandoned the tech sector, resulting in a loss of over $1 trillion in market capitalization due to concerns surrounding a new artificial intelligence application from a Chinese startup.
In the U.S., AI chipmaker Nvidia closed Monday’s trading down 16.9 percent, while its competitor Broadcom fell 17.4 percent. Other technology companies faced similar downturns, with Microsoft declining 2.14 percent and Alphabet, Google’s parent company, dropping over 4 percent.
On Monday, Nvidia’s stock plummeted over 17 percent, falling to $118.03 by 3:45 PM ET (currently trading at $118.58), dragging down other AI-focused stocks as well. This decline wiped out approximately $593 billion in market value, marking the largest one-day loss for a company on Wall Street, according to LSEG data. This drop was more than double Nvidia’s previous record loss set last September. In addition, the market indexes showed mixed results: the Dow rose by 0.7 percent, while the S&P 500 fell by 1.5 percent and the Nasdaq dropped by 3.1 percent.
This development could pose a challenge for Nvidia, as its valuation is closely linked to its capacity to market expensive and highly profitable advanced chips to tech clients.
Meanwhile, an index tracking semiconductor stocks saw a significant decline of 9.2 percent, its steepest single-day percentage drop since March 2020.
“People are selling first and will ask questions later,” noted Morningstar chief U.S. market strategist Dave Sekera in his comments.
European stocks also take a hit
DeepSeek’s rapid rise has shaken stock markets across Europe as well. Dutch chip equipment maker ASML saw its stock decrease by more than 7 percent, while Siemens Energy, which produces AI-related hardware, experienced a 20 percent plunge. Meanwhile, DeepSeek announced it was the target of a cyberattack.
“Due to large-scale malicious attacks on DeepSeek’s services, we are temporarily limiting registrations to ensure continued service,” the company stated. “Existing users can log in as usual. Thanks for your understanding and support.”
Earlier on the same day, the startup faced outages on its website after its AI assistant became the top-rated free application available on Apple’s App Store in the U.S. The company resolved issues related to its application programming interface and user login problems, according to its status page. The outages on Monday stock marked the company’s longest downtime in roughly 90 days and coincided with its rapid rise in popularity.
Growing concerns about AI dominance
The emergence of DeepSeek raises questions about the future of U.S. AI leadership and the scale of investments being planned by American firms. Last week, OpenAI joined several companies in a commitment to invest $500 billion in developing AI infrastructure in the U.S. President Donald Trump, in one of his initial statements since resuming office, referred to this initiative as “the largest AI infrastructure project by far in history” that would secure “the future of technology” in the U.S.
DeepSeek operates on the open-source DeepSeek-V3 model, which its developers assert was trained for around $6 million — a stark contrast to the billions spent by competing firms. However, this assertion has faced skepticism from various experts in the AI field. The researchers clarify that they utilize existing technology and open-source code, which is software available for anyone to use, modify, or distribute without charge.
Implications of DeepSeek’s emergence
DeepSeek’s rise coincides with the U.S. imposing restrictions on the sale of advanced chip technologies essential for AI to China. In response to the lack of steady supplies of imported advanced chips, Chinese AI developers have collaborated and experimented with novel approaches, resulting in AI models that necessitate significantly less computing power than previously required. This shift not only reduces costs but also has the potential to disrupt the industry.
After the launch of DeepSeek-R1 earlier this month, the company claimed its performance is “on par with” one of OpenAI’s latest models for tasks such as mathematics, coding, and natural language reasoning. Silicon Valley venture capitalist and Trump advisor Marc Andreessen characterized DeepSeek-R1 as “AI’s Sputnik moment,” alluding to the 1957 satellite launched by the Soviet Union that caught the U.S. off-guard regarding technological advancements.
Read more: China’s DeepSeek launches open-source AI model, rivals OpenAI-o1
Why it matters: Nvidia’s role in AI
Nvidia’s previously unchallenged position in the AI landscape has been widely accepted, resulting in substantial stock gains and establishing it as a bellwether for the AI economy. The sudden emergence of DeepSeek — whose R1 model was publicly introduced just a week ago — is startling investors due to its efficient design and effective results.
If DeepSeek’s claims prove accurate, it may have uncovered a more cost-effective route to AI breakthroughs.
Trump: DeepSeek’s AI should be a ‘wakeup call’ to U.S. industry
U.S. President Donald Trump stated that Chinese startup DeepSeek’s technology should motivate American companies to enhance their competitiveness. Speaking in Florida, he described DeepSeek’s faster and cheaper AI methods as a “wake-up call” for the U.S. industry.
Trump noted that while Chinese companies are innovating, the U.S. has the world’s top scientists, suggesting that American firms could also develop more cost-effective AI solutions. He emphasized that this shift could lead to significant savings while achieving similar results.
What they’re saying about DeepSeek
“DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling,” stated an Nvidia spokesperson on Monday, referring to the technical method that has enabled reasoning models like OpenAI’s o1 and DeepSeek’s R1.
“DeepSeek’s work illustrates how new models can be created using that technique, leveraging widely available models and compute that is fully export control compliant.” The spokesperson, however, sought to downplay the notion that DeepSeek’s model diminishes the necessity for Nvidia’s advanced hardware, emphasizing that training an AI model, known as inference, “requires significant numbers of NVIDIA GPUs and high-performance networking.”
Analysts at Saxo Bank MENA commended DeepSeek for its affordability and open-source approach, stating,“DeepSeek challenges the traditional, capital-intensive AI development approach by using less advanced hardware to create cost-efficient models. Their open-source strategy promotes faster innovation and wider adoption, potentially reducing the competitive edge of U.S. firms that rely on proprietary systems.
What we’re watching: Analyzing stock market trends
Stock market watchers are still evaluating whether the recent selloff signifies an overreaction or if the luster is fading from Nvidia’s stock.
“I believe the demand for the best AI hardware will persist,” tech analyst Gene Munster commented today on X. “Hyperscalers, enterprises, and sovereign entities are not looking for a cheaper way to achieve AGI. They’re looking for a faster way to get there,” adding that DeepSeek “doesn’t alter that dynamic.”
Meanwhile, Saxo Bank MENA said, “This development could raise concerns about the high valuations of the U.S. tech sector that has been the key driver of broader U.S. market gains.”
Beating chip restrictions
According to Saxo, DeepSeek’s success prompts a critical question: how did they thrive despite U.S. export controls? The Biden administration’s semiconductor restrictions aimed to limit China’s access to advanced chips, yet DeepSeek has flourished, indicating possible workarounds or that the controls are less effective than intended. This shift could significantly impact U.S. policy and investor views on Chinese tech. Investors should evaluate U.S. AI capital expenditures and margins, monitor for value in Chinese tech, diversify investments across various sectors and regions, and prepare for potential policy changes that could create volatility in the semiconductor market.
How China’s DeepSeek app compares to ChatGPT
While OpenAI’s training for each model appears to be in multiples of tens of millions of dollars, DeepSeek claims it pulled off training its model for just over $5.5 million.
And that price difference also appears to be passed on to the consumer.
API access for DeepSeek-RI starts at $0.14 for one million tokens or roughly 750,000 words. DeepSeek’s latest model is reportedly closest to OpenAI’s o1 model, priced at $7.50 per one million tokens. That’s a pretty big disparity in pricing.
One key advantage is DeepSeek’s open-source nature. Unlike OpenAI, which has strayed from its original “open” ethos, DeepSeek allows users to download its R1 model for free and run it locally, ensuring data privacy. While some outputs may be censored due to Chinese regulations, users can find ways to bypass these limitations.
In terms of performance, while ChatGPT excels in conversational and creative tasks, DeepSeek appears superior for technical applications like coding and logical reasoning. For most queries, the two models deliver comparable results. As DeepSeek remains free for many users, companies may find it hard to justify sticking with ChatGPT, especially given the substantial price difference.
