Global tech shares drop as China’s AI chatbot DeepSeek alarms investors
Chinese startup’s $6m product raises doubts about sustainability of western artificial intelligence boom.
Investors punished global tech stocks on Monday after the emergence of a Chinese chatbot competitor to OpenAI’s ChatGPT, DeepSeek, raised doubts about the sustainability of the US artificial intelligence boom.
The tech-heavy Nasdaq index in New York opened lower after investors digested the implications of the latest AI model developed by the startup DeepSeek.
Nvidia, the most valuable listed company in the US and a leading maker of the computer chips that power AI models, lost more than $400bn (£321bn) in stock market value in early trading as its shares declined 13.6%, while Microsoft shed $130bn and Google’s parent, Alphabet, declined by $80bn.
Nvidia’s fall – which wiped about $465bn off its value, was the biggest in US stock market history, according to Bloomberg.
The DeepSeek AI assistant topped the Apple app store in the US and UK over the weekend, above OpenAI’s ChatGPT.
Shares in other AI-related companies based in the US, such as Tesla, Meta and Amazon, all fell when US markets opened.
DeepSeek claims to have used fewer chips than its rivals to develop its models, making them cheaper to produce and raising questions over a multibillion-dollar AI spending spree by US companies that has boosted markets in recent years.
The company developed bespoke algorithms to build its models using reduced-capability H800 chips produced by Nvidia, according to a research paper published in December.
Nvidia’s most advanced chips, H100s, have been banned from export to China since September 2022 by US sanctions. Nvidia then developed the less powerful H800 chips for the Chinese market, although they were also banned from export to China last October.
DeepSeek’s success at building an advanced AI model without access to the most cutting-edge US technology has raised concerns about the efficacy of Washington’s attempts to stymie China’s hi-tech sector.
Marc Andreessen, a leading US venture capitalist, compared the launch of DeepSeek’s R1 model last Monday to a pivotal moment in the US-USSR space race, posting on X that it was AI’s “Sputnik moment”, when the Soviet Union astounded its cold war rival by launching a satellite into orbit.
According to DeepSeek, its R1 model outperforms OpenAI’s o1-mini model across “various benchmarks”, while research by Artificial Analysis puts it above models developed by Google, Meta and Anthropic in terms of overall quality.
The company was founded by the entrepreneur Liang Wenfeng, who runs a hedge fund, High-Flyer Capital, that uses AI to identify patterns in stock prices. Liang reportedly started buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.
The company is purely focused on research rather than commercial products – the DeepSeek assistant and underlying code can be downloaded for free, while DeepSeek’s models are also cheaper to operate than OpenAI’s o1. In an interview with Chinese media, Liang said “AI should be affordable and accessible to everyone.” Liang also said that the gap between US and Chinese AI was only one to two years.
The DeepSeek development raises doubts over the necessity for hefty investment in AI infrastructure such as chips and the market-leading role of US tech companies in AI, which in turn threatens to put American tech sector valuations under pressure.
DeepSeek claims R1 cost $5.6m to develop, compared with much higher estimates for western-developed models. Last year Dario Amodei, the co-founder of leading AI firm Anthropic, put the current cost of training advanced models at between $100m and $1bn.
The pan-European Stoxx 600 fell on Monday, and technology stocks were down by 4.5%. The Dutch chipmaker ASML slid by 8.2%, while Germany’s Siemens Energy, which provides hardware for AI infrastructure, lost 4.1%, and France’s digital automation company Schneider Electric fell by 6.8%.
It followed losses in Asia, where the Japanese chip companies Disco and Advantest – a supplier to Nvidia – suffered declines of 1.8% and 8.6% respectively. In the US, Nasdaq 100 futures were down 2.6%, and S&P 500 futures slipped 1.4%.
Richard Hunter, the head of markets at the platform Interactive Investor, said: “It will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry which has powered much of the gain seen in the main indices over the last couple of years.
“The larger question has suddenly become whether the hundreds of billions of dollar investment in AI needs re-evaluation.”
Andrew Duncan of the UK’s Alan Turing Institute said the DeepSeek development was “really exciting”.
He added: “It demonstrates that you can do amazing things with relatively small models and resources. It shows that you can innovate without having the massive resources, say, of OpenAI.”
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