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DeepSeek AI Disrupts U.S. Market Leaders, Nvidia Faces Record Loss

Global investors faced a significant market shake-up on Monday as fears grew that a low-cost Chinese artificial intelligence model could disrupt the dominance of industry leaders like Nvidia.

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DeepSeek AI Disrupts U.S. Market Leaders, Nvidia Faces Record Loss

DeepSeek AI Disrupts U.S. Market Leaders, Nvidia Faces Record Loss

Global investors faced a significant market shake-up on Monday as fears grew that a low-cost Chinese artificial intelligence model could disrupt the dominance of industry leaders like Nvidia

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The launch of DeepSeek, a Chinese startup’s new AI assistant, sent shockwaves through the tech sector, wiping out a staggering $593 billion from Nvidia’s market value—the largest one-day loss for any company in Wall Street history.

DeepSeek, which claims to use significantly less data at a fraction of the cost of existing AI services, has already surpassed OpenAI's ChatGPT in app downloads on Apple's platform. The announcement of DeepSeek's AI assistant ignited concerns that the rising competition could derail the rapid growth of U.S.-based AI giants, particularly Nvidia, which saw its stock tumble nearly 17%, contributing to its historic loss.

As a result, the tech-heavy Nasdaq dropped 3.1%, with Nvidia leading the declines, followed by chipmaker Broadcom, which fell 17.4%, and major players like Microsoft and Alphabet, which dropped 2.1% and 4.2%, respectively. The Philadelphia semiconductor index also plunged 9.2%, its largest decline since March 2020, with Marvell Technology suffering the steepest loss at 19.1%.

The downturn spread globally, with stocks in Asia and Europe also under pressure. Japan's SoftBank Group closed down 8.3%, while ASML, a leading semiconductor equipment maker, saw a 7% drop.

AI Disruption: A 'Sputnik Moment' for the Industry?

Brian Jacobsen, chief economist at Annex Wealth Management, emphasized that DeepSeek's innovation could be a game-changer: “If DeepSeek is indeed the ‘better mousetrap,’ it could disrupt the entire AI narrative that has driven markets over the last two years.” A shift in the AI landscape, he added, could lead to reduced demand for chips, less need for power production, and fewer large-scale data centers.

DeepSeek's models, notably DeepSeek-V3 and DeepSeek-R1, have gained praise for their impressive performance and low cost. The startup’s researchers claim that DeepSeek-R1 is 20 to 50 times cheaper to use than OpenAI's GPT models, further intensifying concerns about the future profitability of U.S. tech firms heavily invested in AI infrastructure.

Marc Andreessen, the Silicon Valley venture capitalist, has compared DeepSeek’s breakthrough to the Soviet Union’s launch of Sputnik, calling the R1 model one of the most significant AI advancements he has ever witnessed.

However, some analysts, like Daniel Morgan of Synovus Trust Company, believe the selloff was an overreaction. He argued that DeepSeek’s model targets mobile and PC devices rather than large-scale data centers, where companies like Nvidia, AMD, and Broadcom continue to dominate.

A Flight to Safety and Volatility in Tech Stocks

As tech stocks suffered, investors flocked to safer assets, pushing U.S. Treasury yields down to 4.53%, while the yen and Swiss franc strengthened against the U.S. dollar. In the wake of the selloff, many banks are expected to adjust their risk management strategies, holding fewer tech stocks or carefully managing their positions as clients unload their holdings.

The AI boom had previously fueled massive capital inflows, boosting stock valuations to new heights. In fact, just days before the downturn, U.S. AI stocks had surged following President Donald Trump’s announcement of a $500 billion private-sector investment in AI infrastructure. SoftBank later committed $19 billion to the Stargate venture, aimed at advancing AI technologies with backing from OpenAI and Oracle.

Trump, who sees the potential of AI for economic growth, acknowledged that DeepSeek’s rise could be a wake-up call for the industry.

A Strategic Opportunity Amidst Uncertainty

Despite the market jitters, some investors see the current volatility as an opportunity to purchase quality tech stocks at discounted prices. Nvidia, for example, remains down 11.8% for the year but surged by 171% in 2024 and 239% in 2023, making it a key player in the AI race.

Other sectors closely tied to the AI boom also experienced sharp declines. Power utility stocks, which had recently rallied on hopes of increased demand from AI-driven data centers, saw significant losses. Vistra dropped 28.3%, Constellation Energy fell 20.8%, and NRG Energy lost 13.2%.

As the AI landscape continues to evolve, the competition between U.S. and Chinese companies promises to reshape the industry, with deep implications for global markets. Investors will be watching closely to see if DeepSeek’s low-cost AI model becomes a game-changer or if the dominance of established tech giants like Nvidia can withstand the pressure.

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