DeepSeek, a Chinese AI company, has claimed to develop a powerful open-source AI model at a fraction of the cost of its American competitors, triggering a market sell-off and raising concerns about China's rapid progress in the AI field.
Tech stocks experienced a significant downturn on Monday as concerns grew that Chinese artificial intelligence company DeepSeek had surpassed U.S. leadership in AI development. The market sell-off was triggered by claims made by DeepSeek, which announced the release of an open-source AI model in December. DeepSeek asserted that the development process took only two months and cost less than $6 million.
This assertion raised alarm bells, as American tech giants like OpenAI, Microsoft, Meta, and others have invested hundreds of billions of dollars in their own AI models. DeepSeek's app has climbed to the top spot as the most downloaded free app in the Apple App Store, displacing OpenAI's ChatGPT to the second position. Among the hardest-hit companies in the stock market slump was chipmaker Nvidia, with shares plummeting by over 12%. Nvidia had been a standout performer recently, with its share price soaring more than 200% over the past two years, making it one of the world's largest companies. Nvidia's decline wiped out over $300 billion in market value. Other semiconductor companies also suffered substantial losses, including Micron Technology and Arm Holdings, each falling 7%, while ASML slid by 9%. Mega-cap tech firms also felt the impact, with Microsoft and Google parent Alphabet experiencing a 4% drop. Meta Platforms, which is developing its own open-source AI model, saw its share price decline by nearly 2%.Constellation Energy, which partnered with Microsoft to restart the Three Mile Island nuclear plant to power AI servers, plunged by 16%. Shares of other power companies perceived as AI beneficiaries, such as Vistra Energy and NRG Energy, also dropped sharply. Siemens Energy, a manufacturer of equipment for utility companies, experienced a 20% decline, while GE Vernova, another maker of power equipment, fell by over 23%. Not everyone is convinced by DeepSeek's pronouncements. Bernstein analyst Stacy Rasgon expressed skepticism, stating, 'We believe that...DeepSeek did not 'build OpenAI for $5M'. Giuseppe Sette, president of AI market research firm Reflexivity, offered a more optimistic view, asserting that the underlying technology behind DeepSeek appears 'extremely bullish in the long-term' because it could serve as a blueprint for other AI firms. Sette explained in a note on Monday, 'DeepSeek has taken the market by storm by doing more with less. In layman terms, they activate only the most relevant portions of their model for each query, and that saves money and computation power. This shows that with AI the surprises will keep on coming in the next few years.'
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