DeepSeek AI, a low-cost Chinese artificial intelligence (AI) start-up from Hangzhou, has rattled United States tech stocks and the global stock markets, tanking the value of chip maker Nvidia by as much as $593 billion overnight—a record 17 per cent one-day loss for the Silicon Valley golden child. According to LSEG data, it is a record one-day m-cap loss for a Wall Street stock in history.
The AI’s disruption has hit Jensen Huang’s Nvidia the hardest, but the scenario is unpleasant across the board — the S&P 500 dropped, and the Nasdaq slumped over 3 per cent. Fears over the costly US endeavours in AI tech against the reportedly comparable Chinese alternative—available on open source and made at a fraction of the cost—was what largely dragged the markets.
We take a look at how DeepSeek’s AI disruption sent a $593 billion shockwave to Nvidia, dragged global tech stocks and rattled stock markets around the world.
What is DeepSeek AI?
According to a Reuters report, Chinese start-up DeepSeek launched a free AI assistant last week, claiming that it uses less data at a fraction of the cost of other existing alternatives, such as OpenAI’s ChatGPT, Google’s Gemini and others.
By January 27, DeepSeek AI had overtaken ChatGPT in terms of downloads from the US iOS Apple’s app store, the report added. In fact, DeepSeek has surpassed ChatGPT in several regions, including the UK, Australia, Canada, China and Singapore.
DeepSeek’s models include DeepSeek-V3 and DeepSeek-R1. According to the report, little is known about the Hangzhou startup behind DeepSeek, which is majority-owned by Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer.
Its researchers wrote in a paper last month that the DeepSeek-V3 model, launched on January 10, used Nvidia’s lower-capability H800 chips for training, spending less than $6 million.
According to a post on DeepSeek’s official ‘WeChat’ account, DeepSeek-R1, released last week, is 20 to 50 times cheaper to use than OpenAI’s o1 model, depending on the task.
How Have Tech Stocks Reacted? Nvidia, Broadcom, Microsoft and Google Tumble
On January 27, the US tech-heavy Nasdaq slipped 3.1 per cent, largely due to Nvidia’s drag, which lost a record 17 per cent overnight, followed by chip maker Broadcom Inc, which finished down 17.4 per cent, ChatGPT backer Microsoft down 2.1 per cent, and Google parent Alphabet down 4.2 per cent, as per the Reuters report.
The Philadelphia semiconductor index tumbled 9.2 per cent (its biggest percentage drop since March 2020), and Nasdaq’s biggest fall was seen by Marvell Technology, which tumbled 19.1 per cent.
US equity declines followed a selloff that started in Asia, with Japan’s SoftBank Group finishing down 8.3 per cent and moved through Europe, where ASML fell 7 per cent.
Among other stocks, Vertiv Holdings, which builds data centre infrastructure, slumped 29.9 per cent on January 27; Vistra shares fell 28.3 per cent, Constellation Energy shares fell 20.8 per cent, and NRG Energy lost 13.2 per cent. The report noted that power companies saw sell-offs as many investors had recently flocked in hopes of a massive demand surge from power-hungry data centres needed for AI.
Expert View: Is DeepSeek A Threat to US Tech Cos?
Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, told Reuters that if DeepSeek’s claims are true, it “is the proverbial ‘better mousetrap’ that could disrupt the entire AI narrative that has helped drive the markets over the last two years”. He added, “It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centers.”
US President Donald Trump also weighed in on the discussion, saying on January 27 that DeepSeek should be a “wakeup call” and could be a positive development.
What did US stock market investors buy on Jan 27?
The report noted that most outflows from tech stocks moved towards safe-haven government bonds and currencies — the benchmark US Treasury 10-year yield fell to 4.53 per cent, while in currencies, Japan’s Yen and the Swiss Franc rallied against the US Dollar.
“The increased volatility in tech stocks will prompt banks to adjust their risk management, potentially holding fewer shares or managing positions more carefully as clients unwind their holdings,” one trading executive told Reuters.
(With inputs from Reuters)