Tech stocks were routed on Monday as last week’s release of a low-cost Chinese generative AI model finally shook the markets.
The emergence of DeepSeek, a chatbot developed by a startup based in the eastern Chinese city of Hangzhou, has US giants, including US chip-maker Nvidia, on edge.
Nvidia led the rout yesterday, dropping more than 15% in midday deals on Wall Street, equating to more than a $US500 billion loss in market value.
Microsoft and Alphabet were also firmly in the red.
DeepSeek has certainly set the cat among the pigeons with its ability to match the capacity of US AI pace-setters for a fraction of the investments made by American companies.
Its chatbot recently became the top-rated free application on Apple’s US App Store with the company spending just US$5.6 million developing its AI model—a stark contrast to the billions invested by US tech giants in artificial intelligence.
“US tech dominance is being challenged by China. The focus is now on whether China can do it better, quicker and more cost-effectively than the US, and if they could win the AI race,” Kathleen Brooks, research director at trading platform XTB, said.
A Sputnik moment
US venture capitalist Marc Andreessen likened DeepSeek’s emergence to a “Sputnik moment”, referencing the Soviet Union’s shock to Washington with its 1957 satellite launch.
DeepSeek’s impact on markets has been profound. On Monday, the company announced it was restricting new user registrations due to “large-scale malicious attacks” on its services.
Meanwhile, US tech heavyweights Meta and Microsoft are expected to report earnings later this week, providing an opportunity to address the competitive landscape reshaped by the Chinese startup.
The ripple effects have already been felt across industries. Shares in US semiconductor giant Broadcom dropped 16% while Dutch chip-making equipment supplier ASML saw its stock slide 6.7%.
David Morrison, senior market analyst at Trade Nation, said, “Investors have been forced to reconsider the outlook for capital expenditure and valuations given the threat of discount Chinese AI models.”
As the US and China vie for supremacy in AI, DeepSeek’s disruptive approach could mark a turning point in the global technology race.