Global markets were rocked by the introduction of DeepSeek's affordable AI helper in China, which caused Nvidia to lose a record $593 billion and the Nasdaq to plummet 3.1%. The ramifications for the AI environment and tech sector are significant as investors reassess.
The value of chip company Nvidia plummeted by as much as $593 billion overnight, a historic 17% one-day loss for the Silicon Valley golden child. DeepSeek AI, a low-cost Chinese artificial intelligence (AI) start-up from Hangzhou, has rocked US tech companies and the global financial markets. It is the largest one-day m-cap loss for a Wall Street stock in history, based on LSEG statistics.
Jensen Huang's Nvidia has been the most severely impacted by the disruption caused by AI, but the situation is terrible overall—the S&P 500 fell, and the Nasdaq fell more than 3%. The main factor dragging the markets was concerns about the expensive US AI technology efforts in comparison to the supposedly comparable Chinese alternative, which is open source and produced at a fraction of the price.
We examine how DeepSeek's AI disruption rocked global financial markets, dragged global tech equities, and delivered a $593 billion tsunami to Nvidia.
Describe DeepSeek AI.
A free AI helper was released last week by the Chinese start-up DeepSeek, according to a Reuters article.
asserting that it utilizes less data and costs a small fraction of what other options, including Google's Gemini and OpenAI's ChatGPT, are.
By January 27, DeepSeek AI has outperformed ChatGPT in a number of regions, including the UK, Australia, Canada, China, and Singapore, as well as in terms of downloads from the US iOS app store.
Why Do US AI Players Face a Threat from China's DeepSeek?
Liang Wenfeng, a co-founder of the quantitative hedge fund High-Flyer, owns the majority of the startup based in Hangzhou that develops DeepSeek's models, which include DeepSeek-V3 and DeepSeek-R1. The startup gained notoriety last month when multiple benchmarks revealed that, despite being constructed at a significantly lower cost, its V3 large language model (LLM) surpassed those of numerous well-known US computer giants.
In a number of benchmarks, DeepSeek's R1 language model, which simulates some features of human reasoning, both matched and exceeded OpenAI's most recent o1 model.
Additionally, researchers from DeepSeek reported in a study last month that the V3 model used the Nvidia H800 chips for training and cost less than $6 million, a pittance in comparison to the billions of dollars that AI behemoths like Microsoft, Meta, and OpenAI have pledged to spend this year alone.
The efficacy of US export restrictions on cutting-edge AI chips has also been questioned by DeepSeek. Top AI firms like OpenAI, Microsoft, Google, and Meta may see a drop in market share as a result of its recent developments, while the pricing of AI behemoths may be lowered by DeepSeek.
What's the Reaction of Tech Stocks? Google Tumble, Microsoft, Broadcom, and Nvidia
According to the Reuters report, the US tech-heavy Nasdaq fell 3.1% on January 27 due primarily to Nvidia's drag, which saw it lose a record 17% overnight. Chip maker Broadcom Inc. also finished lower, down 17.4%, Microsoft, the company that backed ChatGPT, was down 2.1%, and Google parent Alphabet was down 4.2%.
The Philadelphia semiconductor index fell 9.2%, the largest percentage down since March 2020, while Marvell Technology experienced the largest decline on the Nasdaq, falling 19.1%.
A selloff that began in Asia, with Japan's SoftBank Group ending the day down 8.3%, and proceeded across Europe, where ASML down 7%, was followed by drops in US stocks.
On January 27, among other equities, Vertiv Holdings, which constructs data center infrastructure, saw a 29.9% decline; shares of Vistra sank 28.3%, Constellation Energy fell 20.8%, and NRG Energy lost 13.2%. According to the article, electricity providers saw layoffs as a result of the recent influx of investors hoping for a huge spike in demand from the power-hungry data centers required for artificial intelligence.
Expert Opinion: Do US Tech Companies Face a Threat from DeepSeek?
According to Jefferies, DeepSeek, which has created an open-source LLM that performs on par with GPT-4o while consuming a fraction of the processing power, "would prompt the AI industry to refocus on return on investment (ROI)." Additionally, Jefferies stated that companies reevaluating computing power needs could result in a decline (or non-growth) in 2026 AI capital expenditures.
The Jefferies study paper, "The Fear Created by China's DeepSeek," claims that DeepSeek is 10% less expensive than Meta's Llama at a training cost of just $5.6 million. The company further stated that the V3's performance matched that of the GPT4-o and outperformed Llama 3.1.
The model is open-source and accessible at Hugging Face. Thus, it could be useful to other AI engineers. We think V3 will make it possible for AI developers to create apps at a significantly reduced cost. But DS hasn't expedited the commercialization of AI and isn't focusing on it," it continued.
If DeepSeek's promises are accurate, he "is the proverbial 'better mousetrap' that could disrupt the entire AI narrative that has helped drive the markets over the last two years," Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, told Reuters. "It could mean less demand for chips, less need for large-scale data centers, and less need for a massive build-out of power production to fuel the models," he continued.
On January 27, US President Donald Trump added his voice to the debate, stating that DeepSeek should serve as a "wakeup call" and may be a good thing.
On January 27, what did investors purchase on the US stock market?
According to the Reuters analysis, the majority of tech stock withdrawals shifted to safe-haven government bonds and currencies. The benchmark US Treasury 10-year yield dropped to 4.53%, and the Swiss franc and the Japanese yen both strengthened versus the US dollar.
According to one trade executive who spoke to Reuters, "banks will need to modify their risk management due to the increased volatility in tech stocks. They may decide to hold fewer shares or manage positions more carefully as clients unwind their holdings."
What was mentioned about DeepSeek by Sam Altman of competing AI ChatGPT?
In response to DeepSeek's quick ascent, OpenAI creator Sam Altman said it was "invigorating" to have a new rival. Altman has also alluded to possible OpenAI updates that would challenge DeepSeek's R1 reasoning model.
"Deepseek's R1 is an impressive model, particularly around what they're able to deliver for the price," Altman wrote in a post thread on X. Naturally, we will produce far superior models, and having a new rival is genuinely energizing! We're going to pull up some releases.
But primarily, we are eager to carry out our research roadmap and think that increased computing power is more crucial than ever to achieving our goal.The world will want to use a lot of artificial intelligence, and the upcoming next-generation models will truly astound us," Sam Altman continued.
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