Big Tech took a serious hit from China's affordable DeepSeek AI assistant. Overnight, chip giant Nvidia alone lost a record $593 billion, and its stock continued to decline until Friday's closing. Expert opinions on the consequences for the tech sector and the potential for recovery of the Magnificent Seven are thus presented.
Last week, the low-cost Chinese artificial intelligence (AI) start-up DeepSeek AI, based in Hangzhou, rocked the global and US tech markets, causing chip maker Nvidia's value to plummet by up to $593 billion overnight, a record 17 percent one-day loss for the Silicon Valley golden child. It is the largest one-day market cap loss for a Wall Street stock in history, per LSEG data.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.
The stock price of Nvidia
Notably, DeepSeek and US President Donald Trump's remarks about the semiconductor sector continued to hurt Nvidia's stock until the market closed on Friday, January 31. According to a Bloomberg report, Nvidia's stock closed at $120 per share, which is around 20% off its record high and barely over its 200-day moving average (MVA).
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 assistant was introduced last week by a Chinese start-up called DeepSeek, which claims to utilize less data and cost a fraction of what other options like Google's Gemini and OpenAI's ChatGPT do. This information was reported by Reuters.
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.
Is Big Tech at Risk 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 paper 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 that AI behemoths like Microsoft, Meta, and OpenAI have committed 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 Was the Reaction of Tech Stocks? Google, Microsoft, Broadcom, and Nvidia all faltered.
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%.
What Was the Reaction of Tech Stocks? Google, Microsoft, Broadcom, and Nvidia all faltered.
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%.
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: Is the Magnificent Seven at Risk from DeepSeek?
Market observers believe the Magnificent Seven will likely retain their titles despite the January 27 thrashing, even if the majority of analysts believe DeepSeek will force a rethink in the broader AI industry, particularly in terms of cost-effectiveness and innovative use of existing technologies.
The Magnificent Seven, often known as the Mag-7, are "a group of high-performing and influential companies in the US stock market," according to Investopedia. The elite group includes software behemoth Microsoft, Nvidia, Elon Musk's Tesla, Mark Zuckerberg's Meta Platforms, Jeff Bezos' Amazon, iPhone manufacturer Apple, and Alphabet, the parent company of Google.
The open-source LLM created by DeepSeek, which uses a fraction of the processing power to match GPT-4o's performance, "would prompt the AI industry to refocus on return on investment (ROI)," according to Jefferies. "Companies re-evaluating computing power needs could cause 2026 AI capex to fall (or not grow)."
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.
It said, "It is an open-source model, available at Hugging Face. Therefore, other AI developers could use it. We believe V3 will allow AI developers to develop applications at a much lower cost. However, DS is not focused on commercialization, and has not accelerated any AI commercialization." According to Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, who spoke to Reuters, if DeepSeek's claims are accurate, it "is the proverbial 'better mousetrap' that could disrupt the entire AI narrative that has helped drive the markets over the last two years."
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: Is the Magnificent Seven at Risk from DeepSeek?
Market observers believe the Magnificent Seven will likely retain their titles despite the January 27 thrashing, even if the majority of analysts believe DeepSeek will force a rethink in the broader AI industry, particularly in terms of cost-effectiveness and innovative use of existing technologies.
The Magnificent Seven, often known as the Mag-7, are "a group of high-performing and influential companies in the US stock market," according to Investopedia. The elite group includes software behemoth Microsoft, Nvidia, Elon Musk's Tesla, Mark Zuckerberg's Meta Platforms, Jeff Bezos' Amazon, iPhone manufacturer Apple, and Alphabet, the parent company of Google.
The open-source LLM created by DeepSeek, which uses a fraction of the processing power to match GPT-4o's performance, "would prompt the AI industry to refocus on return on investment (ROI)," according to Jefferies. "Companies re-evaluating computing power needs could cause 2026 AI capex to fall (or not grow)."
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.
It said, "It is an open-source model, available at Hugging Face. Therefore, other AI developers could use it. We believe V3 will allow AI developers to develop applications at a much lower cost. However, DS is not focused on commercialization, and has not accelerated any AI commercialization." According to Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, who spoke to Reuters, if DeepSeek's claims are accurate, it "is the proverbial 'better mousetrap' that could disrupt the entire AI narrative that has helped drive the markets over the last two years."
US President Donald Trump also chimed in on the topic, saying on January 27 that DeepSeek should be a “wakeup call” and may be a positive thing.
However, market-wise a Bloomberg Markets Live Pulse survey of 260 respondents revealed that 88 per cent felt the hyped debut — which wiped $784 billion from the S&P 500 in a single day — will have little to no influence on the shares of the US technological behemoths in future weeks.
Steve Sosnick, chief strategist at Interactive Brokers LLC, told Bloomberg that it would be difficult to overthrow the Magnificent Seven since they have successfully created sizable competitive moats around their enterprises. He went on to say that Wall Street was reminded by the frantic selloff "that even disruptors are at risk of being disrupted." Competitors will inevitably emerge if businesses are making excessive profits in an attempt to share in those advantages.
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.
However, market-wise a Bloomberg Markets Live Pulse survey of 260 respondents revealed that 88 per cent felt the hyped debut — which wiped $784 billion from the S&P 500 in a single day — will have little to no influence on the shares of the US technological behemoths in future weeks.
Steve Sosnick, chief strategist at Interactive Brokers LLC, told Bloomberg that it would be difficult to overthrow the Magnificent Seven since they have successfully created sizable competitive moats around their enterprises. He went on to say that Wall Street was reminded by the frantic selloff "that even disruptors are at risk of being disrupted." Competitors will inevitably emerge if businesses are making excessive profits in an attempt to share in those advantages.
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.
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