Some of the largest US tech companies, including Nvidia, Microsoft, Meta, and Tesla, faced a staggering $1 trillion market wipeout on Monday, spurred by concerns over a breakthrough artificial intelligence model developed in China. The shockwaves rippled from Wall Street to Silicon Valley.
Nvidia’s stock took a sharp dive, dropping nearly 13% in early trading and wiping out hundreds of billions in market value. This came after news broke about DeepSeek, a Chinese startup that made headlines in December by unveiling an open-source large-language model available for free.
DeepSeek asserts that it created the advanced AI model in a mere two months, spending less than $6 million. Remarkably, the company claims to have achieved this without relying on Nvidia’s cutting-edge computer chips, a stark departure from the billions typically poured into AI development by Western tech giants.
The launch of DeepSeek’s model, described by venture capitalist Marc Andreessen as “AI’s Sputnik moment,” sent shockwaves through the global tech sector, hammering AI firms and chip manufacturers alike.
This revelation has caused widespread doubts about the foundations of the AI industry’s supply chain and raised questions about whether the United States truly holds an edge over its main geopolitical competitor.
“The DeepSeek announcement from China was nothing short of a financial Scud missile aimed at a US market that is much more fragile than most will admit,” remarked Anthony Esposito, CEO of Islanda Capital Investments. He pointed out that much of the stock market’s recent rally was fueled by AI-related optimism.
“Unfortunately, I see more downside to come in the coming months,” Esposito warned.
The selloff hit the so-called Magnificent 7 stocks particularly hard, with big names like Apple, Nvidia, Google’s parent company Alphabet, Tesla, Microsoft, Meta, and Amazon feeling the impact.
Alphabet saw its shares drop over 2%, while Microsoft, which has heavily invested in OpenAI under Sam Altman’s leadership, slid almost 3%. Amazon, Tesla, and Meta also faced declines, while Apple was the only stock among the group trading higher.
By the market’s opening, losses across the board were estimated to surpass $1 trillion.
Meanwhile, DeepSeek’s app soared to the top of Apple’s App Store charts as users rushed to try out its chatbot, drawn by curiosity and buzz around its capabilities.
DeepSeek’s rapid progress has sparked intense scrutiny, especially regarding the vast sums spent by major US firms on AI research. Questions have emerged about whether such expenses are truly justified.
“DeepSeek clearly doesn’t have access to as much compute as US hyperscalers and somehow managed to develop a model that appears highly competitive,” noted Raymond James semiconductor analyst Srini Pajjuri in a Monday report.
This upheaval occurred mere days after President Trump announced Stargate, a $500 billion initiative aimed at advancing AI. The program involves collaborations with major players like OpenAI, Oracle, and SoftBank and focuses on expanding data centers and chip production to support AI development.
Despite the market turmoil, Wedbush analyst Dan Ives remains optimistic about the long-term potential of AI-focused firms. He downplayed the threat posed by DeepSeek, calling it a “minimal threat to the AI revolution thesis” and suggesting the selloff could be a “buying opportunity” for undervalued stocks like Nvidia.
Nvidia’s dominance in creating powerful computer chips essential for advanced AI applications is unlikely to be challenged anytime soon, Ives added.
“At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia,” Ives said in a note to clients.
“Launching a competitive LLM model for consumer use cases is one thing … launching broader AI infrastructure is a whole other ballgame and nothing with DeepSeek makes us believe anything different,” he continued.
Critics have also pointed to the risks posed by a China-led AI industry, particularly regarding censorship and control.
According to a post shared by the House’s China Select Committee on X, DeepSeek’s chatbot claims to adhere to “China’s laws and regulations, as well as socialist core values.” The chatbot reportedly avoids discussing sensitive topics such as the Tiananmen Square massacre of 1989 or Chinese leader Xi Jinping.
Social media screenshots revealed that the chatbot labeled accusations of human rights violations in Xinjiang province as “unfounded and politically motivated.”
Skepticism has also been raised about DeepSeek’s claims that it developed its AI model with just $6 million in funding.
Alexandr Wang, CEO of Scale AI, told CNBC that DeepSeek likely used far more advanced Nvidia chips than its public statements suggest. He estimated the company may have had access to as many as 50,000 of these chips, despite US government export restrictions.
Elon Musk, founder of xAI and a frequent collaborator with Nvidia, appeared to agree with Wang’s assessment. Musk commented on X, saying Wang’s claim was “obviously” correct.
Wedbush’s Ives added that it remains unclear how DeepSeek managed to navigate restrictions on chip exports or what technology they ultimately employed. “There will be many skeptics around this issue given the information is coming from China,” he said.
{Matzav.com}