How Chinese AI company, DeepSeek, is causing Nvidia, other stocks to lump

DeepSeek, a Chinese artificial intelligence company, is sending shockwaves through Wall Street with its new AI app, which some experts argue rivals OpenAI’s ChatGPT.

The company has gained widespread attention not only for its technological capabilities but also for its remarkably low development costs, estimated at $6 million by Wedbush Securities analyst Dan Ives.

This figure stands in stark contrast to the projected $1 trillion investment in AI by U.S. tech giants such as OpenAI and Google over the coming years, according to Goldman Sachs.

The launch of DeepSeek’s AI model has led to a significant selloff in AI-related stocks. On Monday, Nvidia, a major supplier of advanced AI chips, saw its shares tumble by 17%, while Dutch chipmaker ASML dropped 7.6%.

The decline extended to other semiconductor firms, including Broadcom, which fell 18%. Energy-related stocks also took a hit amid fears that DeepSeek’s energy-efficient AI technology could reduce demand for energy-intensive computing infrastructure. GE Vernova plummeted 23%, and Vistra dropped 30%.

The broader market reflected investor unease, with the tech-heavy Nasdaq index declining 3.5% in afternoon trading. Despite this, it was not the worst day for the index in recent years, as the steepest drop occurred in March 2020 during the onset of the COVID-19 pandemic.

DeepSeek was founded in July 2023 by Liang Wenfeng, a graduate of Zhejiang University and a hedge fund manager with $8 billion in assets.

According to the MIT Technology Review, Liang previously focused on using AI for investment strategies and had acquired a stockpile of Nvidia A100 chips before U.S. export restrictions took effect.

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The company’s latest AI model launched on 20 January, uses a novel “inference-time computing” approach. Giuseppe Sette, president of Reflexivity, explained, “They activate only the most relevant portions of their model for each query, and that saves money and computation power.”

The model has outperformed expectations, becoming the top download on Apple’s App Store over the weekend, although some users faced registration issues due to reported “large-scale malicious attacks,” as noted on DeepSeek’s website.

Despite its technological breakthroughs, some analysts remain sceptical about DeepSeek’s potential impact on U.S. businesses. “No U.S. Global 2000 is going to use a Chinese startup DeepSeek to launch their AI infrastructure and use cases,” Ives said.

The implications of DeepSeek’s advancements are causing a reassessment of the AI sector. “This shows that with AI the surprises will keep on coming in the next few years,” Sette remarked.

However, CFRA Research’s Angelo Zino pointed out that DeepSeek’s cost-effective and energy-efficient approach has raised concerns among U.S. technology investors about the sustainability of Silicon Valley’s high spending in AI.

Some experts, however, believe the market’s reaction is overblown. “Accommodating the huge demand for the consumption of all this AI technology is still going to require massive amounts of infrastructure,” said Adam Crisafulli of VitalKnowledge.

In a statement to CBS News, Nvidia acknowledged DeepSeek’s contribution to the AI field, calling it “an excellent AI advancement” while emphasising that large-scale AI applications still rely heavily on Nvidia GPUs and high-performance networking.

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