A new Chinese artificial intelligence company, DeepSeek, is making waves in the tech world and rattling Wall Street. Some experts believe its technology rivals OpenAI’s ChatGPT, and its surprisingly low development costs are raising eyebrows among investors.
Why Is DeepSeek Causing a Stir?
DeepSeek has caught investors off guard, not just because of its AI capabilities but also due to its cost-effective approach. According to Dan Ives, an analyst at Wedbush Securities, DeepSeek developed its AI model for just $6 million—an astonishingly low figure compared to the $1 trillion that companies like OpenAI, Google, and other U.S. tech giants are projected to invest in AI over the coming years.
On Monday, DeepSeek’s launch caused a sharp drop in shares of AI heavyweights like Nvidia, a key player in advanced AI chips, and ASML, a major semiconductor company. The sudden emergence of a formidable Chinese competitor has raised concerns about whether Nvidia’s high-end AI chips will remain in demand and whether tech stocks have been overvalued due to AI hype.
“DeepSeek has taken the market by storm by doing more with less,” said Giuseppe Sette, president of AI research firm Reflexivity. “It’s a sign that AI will continue to bring surprises in the coming years.”
Stock Market Shake-Up
DeepSeek’s release sent shockwaves through Wall Street:
- Nvidia shares plunged 17%, wiping out $600 billion in market value—the biggest single-day loss for any company in stock market history.
- ASML dropped 6%, while Broadcom, another semiconductor giant, also fell 17%.
- Energy-related stocks tumbled, as investors worried that DeepSeek’s efficient AI tech could require less power, reducing demand for energy-intensive AI infrastructure. GE Vernova fell 21%, and electricity producer Vistra dropped 28%.
- The Nasdaq declined 3% (612 points), while the S&P 500 lost 1.5%.
Despite these losses, this isn’t the worst single-day drop for the Nasdaq in recent years. The index fell more than 12% on March 16, 2020, at the onset of the COVID-19 pandemic.
What Is DeepSeek?
DeepSeek was founded in July 2023 by Liang Wenfeng, a Zhejiang University graduate and hedge fund manager with an estimated $8 billion in assets. According to the MIT Technology Review, Liang stockpiled Nvidia A100 chips—now banned for export to China—to develop DeepSeek’s AI model.
While some experts are skeptical about the number of chips DeepSeek used, others acknowledge that the company has made legitimate AI breakthroughs, particularly in learning efficiency and memory use.
Is DeepSeek Available in the U.S.?
Yes. DeepSeek’s AI app is available on Apple’s App Store and its website. As of Monday morning, it was the #1 most downloaded app on Apple’s store. However, some users reported issues signing up.
DeepSeek claims it had to temporarily limit new registrations due to “large-scale malicious attacks,” but existing users can still log in.
How Is DeepSeek Different from Other AI Apps?
DeepSeek operates as an open-source large language model that uses a technique called “inference-time computing.” Simply put, it activates only the necessary parts of its AI model for each query, reducing costs and computing power.
Tech investors are impressed. Marc Andreessen called DeepSeek “one of the most amazing and impressive breakthroughs” on social media. Venture capitalist David Sacks echoed the sentiment, saying it proves the AI race will remain highly competitive.
Will DeepSeek Challenge U.S. Tech Giants?
Despite its promising tech, some analysts doubt DeepSeek will gain traction with major U.S. businesses.
“No Fortune 2000 company will use a Chinese startup like DeepSeek for their AI infrastructure,” Ives stated. “At the end of the day, Nvidia remains the leader in AI chips and robotics.”
Privacy Concerns: Should Users Be Worried?
Like TikTok, DeepSeek’s Chinese ownership has raised data privacy concerns. The company’s privacy policy states it collects user data—including keystrokes, chat history, uploaded files, and even birthdates—which are stored on servers in China.
The situation echoes previous concerns about TikTok, which faced U.S. government scrutiny over potential national security risks. While the U.S. once sought to ban TikTok, former President Trump recently signed an executive order delaying enforcement of the ban.
What Does This Mean for Nvidia and the Tech Industry?
DeepSeek’s emergence forces investors to reassess AI spending and expectations. Could Silicon Valley be overspending on AI development? Some analysts think so.
“The fact that DeepSeek’s AI is more cost-effective and energy-efficient has U.S. tech investors worried,” said Jay Woods, chief global strategist at Freedom Capital Markets.
The Biden administration may also take action. Given Trump’s past stance on tariffs against Chinese imports, some experts anticipate potential trade restrictions targeting DeepSeek.
Is the Market Overreacting?
Some Wall Street analysts believe Monday’s selloff was an overreaction.
“It’s one thing to train an AI model cheaply,” said Adam Crisafulli of VitalKnowledge. “But meeting massive global AI demand still requires enormous infrastructure.”
Similarly, Bernstein Research noted that while DeepSeek’s technology is impressive, it’s not revolutionary, suggesting that the stock market’s reaction may have been exaggerated.
What Is Nvidia Saying?
Rather than criticizing DeepSeek, Nvidia actually praised the company’s work.
“DeepSeek is an excellent AI advancement and a perfect example of test-time scaling,” Nvidia said in a statement to CBS News.
However, Nvidia also emphasized that AI inference—applying AI models in real-world scenarios—still requires a significant number of Nvidia GPUs and high-performance computing.
Final Thoughts
DeepSeek’s rise signals a major shift in the AI landscape, proving that cost-effective AI development is possible. Whether this threatens U.S. tech giants remains to be seen, but for now, the AI race is heating up—and investors are paying close attention.
