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Why Chinese AI company DeepSeek is spooking investors on U.S. tech

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On Monday, significant American technology companies such as Nvidia, Oracle, and Broadcom experienced a drop in value following the announcement by Chinese AI startup DeepSeek about their newly revealed system. This system is claimed to be capable of matching ChatGPT’s performance from OpenAI at a notably reduced expense.

1. Chipmakers Nvidia and Broadcom saw a drop of approximately 17% in their stock prices, while Oracle’s stock price dipped by 14%. The decline in technology stocks caused a ripple effect on the overall market, leading to a decrease. The Standard & Poor’s 500 index fell 1.5%, and the tech-centric Nasdaq 100 dropped by 3%.

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2. Stock prices for Nvidia, Broadcom, and Oracle decreased by around 17%, 14% respectively. This downward trend in technology stocks pulled the broader market down with it. Consequently, the Standard & Poor’s 500 index slipped 1.5%, and the tech-focused Nasdaq 100 fell 3%.

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3. Nvidia, Broadcom, and Oracle stocks dropped by about 17%, 14% respectively. The decline in technology stocks led to a broader market downturn, causing the Standard & Poor’s 500 index to drop 1.5% and the tech-focused Nasdaq 100 to sink 3%.

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4. The stock prices for Nvidia, Broadcom, and Oracle fell by roughly 17%, 14% respectively. This fall in technology stocks caused a broader market decline, resulting in the Standard & Poor’s 500 index dropping 1.5% and the tech-focused Nasdaq 100 plummeting 3%.

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5. The stock prices for chipmakers Nvidia and Broadcom dropped by nearly 17%, while Oracle’s stock price decreased by 14%. This sell-off in the technology sector affected the broader market, causing a drop. The Standard & Poor’s 500 index dipped 1.5%, and the tech-focused Nasdaq 100 fell 3%.

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6. Nvidia, Broadcom, and Oracle stocks tumbled by approximately 17%, 14% respectively due to a sell-off in the technology sector. This decline affected the broader market, causing the Standard & Poor’s 500 index to slide 1.5% and the tech-focused Nasdaq 100 to plunge 3%.

According to Ray Wang, CEO of Constellation Research based in Silicon Valley, companies express concern that DeepSeek may outperform American AI leaders in generating profits.

Despite its market-moving clout, DeepSeek is hardly a household name in the U.S. Here’s a primer.

What is DeepSeek and who is behind it?

As a film critic of digital advancements, I must say that DeepSeek, a dynamic Chinese innovation hub, has been instrumental in shaping the future of artificial intelligence. They’ve spearheaded the development of open-source AI models, comparable to the renowned ChatGPT, that have played a pivotal role in popularizing generative artificial intelligence, making it more accessible and mainstream.

In the realm of film criticism, I find myself compelled to discuss a groundbreaking mobile application that swept across the digital landscape: DeepSeek. Launched in early January, this app swiftly ascended to the pinnacle of Apple’s download charts within the United States. By Jan. 25, an astonishing 1.6 million users had embraced it, a testament to its instant appeal.

DeepSeek’s success was not confined to the U.S., as it claimed the No. 1 spot in iPhone app stores across Australia, Canada, China, Singapore, the United Kingdom, and even more impressively, globally. The data, provided by market tracker App Figures, serves as a beacon of its universal recognition. This app, my friends, has truly captured the zeitgeist of the digital age.

The app sets itself apart from other chatbots like ChatGPT by explaining its thought process before providing a response to a query. The company asserts that their newest model, DeepSeek-R1, matches OpenAI’s latest system in performance, and allows developers working on chatbot technology to utilize its software as a foundation.

DeepSeek generated buzz in Silicon Valley by claiming it could match OpenAI’s performance at a lower expense. As per The New York Times, DeepSeak stated that it only required around 2,000 Nvidia’s specialized computer chips to train its chatbots. In contrast, U.S. companies often employ supercomputers with up to 16,000 or more chips, the newspaper noted.

In the year 2023, Liang Wenfeng established a company called DeepSeek. Not long after graduation, Liang, along with his college peers, launched a hedge fund named High-Flyer in 2015 as reported by the Wall Street Journal.

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On Tuesday, President Trump revealed the Artificial Intelligence (AI) project in a joint appearance with leaders from OpenAI, Oracle, and Softbank.

Why did U.S. tech stocks take such a hit?

On Monday, Nvidia experienced a staggering loss of approximately $600 billion in market valuation, marking the largest one-day decline for any U.S. company, as reported by CNBC.

Concerns arise among investors as DeepSeek’s potential development of a model using fewer chips might decrease the need for semiconductors like those produced by Nvidia and similar companies. This could potentially lessen the competitive advantage of American tech giants who have heavily invested in AI technology.

The U.S. has prohibited exporting advanced technologies like graphics processing units (GPUs), essential for artificial intelligence (AI) applications, to China, aiming to slow down the country’s technological growth. However, DeepSeek’s advancements hint at Chinese AI engineers finding innovative solutions within the limitations set by these restrictions, focusing more on improving efficiency using scarce resources.

In his Monday research note, Wedbush Securities analyst Daniel Ives finds the DeepSeek model particularly impressive, considering it had to deal with stringent U.S. chip limitations. The question remains whether DeepSeek managed to bypass these chip restrictions and which chips they eventually opted for. There will be numerous doubters regarding this matter due to the source of the information being China.

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On Monday, OpenAI announced plans to make their contentious video-generating tool available to the general public, offering various subscription options.

How much of a threat does China pose to U.S. dominance in the AI market?

Last year’s third quarter saw the United States maintaining its dominance in the artificial intelligence industry, with an impressive 68% of global venture capital investments going to AI companies. This figure, as reported by CB Insights, was primarily concentrated in the Silicon Valley region, which accounted for roughly half of that total amount.

Some key players in the space hail from San Francisco, like OpenAI (the creator of ChatGPT), Anthropic, and tech giants such as Alphabet (Google’s parent company) and Facebook’s parent company, Meta. On Monday, Alphabet saw a 4% decrease in its stock value, while Meta experienced a slight increase.

Some experts expressed doubts regarding the authenticity of DeepSeek and the true capabilities it possesses. Given that other firms might strive to achieve similar cost reductions as DeepSeek, such skepticism seems warranted.

According to Wang, DeepSeek demonstrates potential for numerous efficiency improvements across the AI industry. Yet, it remains unconfirmed whether these gains are real and which issues they address.

He noted that China is a formidable rival, yet he emphasized that the psychological warfare tactics we witnessed today are significantly stronger than their actual capabilities suggest.

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Trump’s perspectives on artificial intelligence, digital currencies, electric vehicles, and assorted topics may significantly redefine the technological landscape.

How will the Trump administration respond?

Trump has emphasized the importance of America being a leader in AI technology and innovation.

Once Trump began his second presidency, he revoked an executive order issued by President Biden in 2023, which mandated AI firms to disclose their safety test findings to the U.S. administration.

While certain individuals within the technology sector praised Biden’s executive order for setting boundaries and providing direction to AI firms, others voiced worries that such measures might hinder creativity. Previously, during his candidacy, Trump had cautioned that Biden’s policies, including this executive order, were not proving effective.

On a Monday, it was stated by David Sacks, who served as the AI and cryptocurrency advisor in the Trump administration, that DeepSeek indicates the AI competition will be fierce.

On social media X, Sacks stated on Monday that President Trump was justified in canceling the Biden Executive Order as it unfairly restricted American AI companies without considering if China would follow suit (which is clearly not the case). He expressed his confidence in the U.S., but emphasized the need to stay vigilant.

Last week, Trump unveiled a plan worth $100 billion, named Stargate project, which sees OpenAI, Oracle, and Softbank collaborating. Their aim is to inject $500 billion into artificial intelligence (AI) infrastructure over the next four years. According to Trump, this endeavor could generate more than 100,000 jobs in the United States.

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2025-01-28 02:32

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