Beijing, January 28, 2025: A wave of global sell-offs rocked the technology sector on Monday after the launch of a low-cost Chinese artificial intelligence model, DeepSeek, stoked fears about the future dominance of current AI giants like Nvidia. The chipmaker’s market value plummeted by $592.7 billion, marking one of the largest single-day losses in Wall Street history.
DeepSeek, a Chinese AI startup, unveiled its groundbreaking free AI assistant last week, claiming it operates with far less data and at a fraction of the cost of existing services. By Monday, the app had surpassed ChatGPT in downloads from Apple’s App Store, further amplifying investor concerns.
The Nasdaq Composite Index tumbled 3.1%, led by Nvidia’s nearly 17% plunge. Other notable decliners included Broadcom (-17.4%), Microsoft (-2.1%), and Alphabet (-4.2%). The Philadelphia Semiconductor Index recorded its largest drop since March 2020, sliding 9.2%, with Marvell Technology losing 19.1%.
Global repercussions were felt across markets. Japan’s SoftBank Group ended the day 8.3% lower, while Europe’s ASML slid 7%. Investors also fled to safer assets, driving US Treasury 10-year yields down to 4.53% and strengthening currencies like Japan’s yen and the Swiss franc.
DeepSeek’s latest models, DeepSeek-V3 and DeepSeek-R1, have been lauded for their efficiency and cost-effectiveness. The company’s R1 model, released last week, reportedly costs 20 to 50 times less to operate than OpenAI’s leading model. Despite its modest training costs—less than $6 million using Nvidia’s H800 chips—DeepSeek has delivered performance comparable to its US counterparts.
The success of DeepSeek marks a turning point for China’s AI ambitions. Just months ago, the country faced criticism for lagging behind US technology. However, DeepSeek’s advancements have drawn comparisons to the Soviet Union’s launch of Sputnik, a pivotal moment in the space race.
“DeepSeek R1 is AI’s ‘Sputnik moment,'” wrote venture capitalist Marc Andreessen on X, praising the open-source model as a transformative breakthrough.
The rise of DeepSeek has raised doubts about the “bigger is better” approach that has driven the AI market, with analysts predicting a potential decline in demand for high-powered chips, massive data centers, and energy-intensive infrastructure.
“If DeepSeek delivers on its promise, it could fundamentally disrupt the AI narrative that has driven tech markets for two years,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Deutsche Bank analyst Adrian Cox echoed this sentiment, stating that while cheaper AI could reduce infrastructure demand, it may also spur widespread adoption of AI in new applications.
Not all investors see Monday’s selloff as justified. Daniel Morgan, senior portfolio manager at Synovus Trust Company, which holds nearly a million Nvidia shares, argued that DeepSeek’s models primarily compete with consumer AI products like ChatGPT and Google’s Gemini, rather than the data center-focused chips produced by Nvidia.
“The real money in AI is in data center chips,” Morgan said, describing the selloff as a buying opportunity for high-quality tech stocks. Nvidia, which rose 171% in 2024, closed at $118.42, down $24.20 on Monday.
The selloff extended to other sectors, including power utilities that had recently benefited from expectations of surging AI-related energy demands. Shares of Vistra, Constellation Energy, and NRG Energy fell 28.3%, 20.8%, and 13.2%, respectively.
As DeepSeek reshapes the AI landscape, markets are grappling with uncertainty over whether this breakthrough will accelerate innovation or disrupt the existing order. While some hail it as a leap forward, others brace for far-reaching consequences in a rapidly evolving industry.
