Chinese AI app DeepSeek's impressive capabilities and low development costs have caused a market sell-off in the US tech sector. Nvidia, a key player in AI hardware, experienced its worst single-day percentage drop since 2020. Other AI companies, including Google, Microsoft, and Palantir, also saw losses, while Meta rose after announcing increased capital spending plans. DeepSeek's emergence raises questions about the future of AI dominance and the impact on companies that supply computing power for AI training.
America's AI race among U.S. tech titans took a sudden turn when the Chinese AI app DeepSeek burst onto the scene, triggering a market sell-off . The tech-heavy Nasdaq Composite nearly erased its gains for the year, plummeting 3% on Monday. DeepSeek's model appears to match the capabilities of chatbots like OpenAI's ChatGPT and Meta's Llama but at a significantly lower development cost. It also climbed to the top spot on the Apple App Store over the weekend.
Notably, DeepSeek is reportedly able to function using less powerful chips from Nvidia. This development sent shockwaves through Silicon Valley, with Nvidia, a key player in the AI hardware market, losing almost 17% of its value. It marked the worst single-day percentage drop since March 2020, wiping out approximately $600 billion in market capitalization. CEO Jensen Huang's net worth shrunk by an estimated $20 billion in a single day.DeepSeek's disruptive potential extends beyond Nvidia. Other AI companies, including Google, Microsoft, and Palantir, also experienced substantial losses. In contrast, Meta saw its stock rise after announcing an increase in capital spending plans to as much as $65 billion this year. The impact of DeepSeek even rippled through the energy sector, with several nuclear power plant companies facing declines. Investors expressed concerns that if DeepSeek proves to be a game-changer, companies that supply the computing power essential for AI training might not witness the anticipated demand.Analysts remain divided on DeepSeek's long-term implications. While acknowledging the model's impressive capabilities, WedBush analyst Dan Ives cautioned investors against viewing this as a fatal blow to the AI revolution. He urged clients to capitalize on the market sell-off, stating that if inference training accelerates, it would actually propel the AI revolution forward, benefiting companies like hyperscalers, Nvidia, and AI use case developers. He concluded that while DeepSeek is impressive, its impact may be limited. The tech rout spread to Bitcoin, which briefly dipped below $100,000 before partially recovering. As investors shifted away from tech stocks, they moved towards more defensive sectors, including consumer staples (Procter & Gamble, Coca-Cola) and insurance (Travelers). This shift contributed to the Dow Jones Industrial Average's 289-point gain. Bond yields also declined, with the 10-year Treasury yield dropping to 4.529%, its lowest point since December 20, 2024
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