Chinese AI DeepSeek Sparks Market Shockwaves, Hits U.S. Tech Stocks | Image Source: Image.cnbcfm.com
NEW YORK, 27 January 2025 – Global stock markets dried up on Monday while fears about the rapid progress of Chinese artificial intelligence (AI) startups, particularly DeepSeek, were sending waves through the US technology sector. The emergence of this innovative AI platform, which competes with the capabilities of US systems at a fraction of the cost, has raised concerns among investors about the dominance of US technology giants and the sustainability of their high valuations.
How did DeepSeek disrupt the market?
DeepSeek, a Chinese AI company, has grown in popularity since the release of its iconic catbot earlier this month. Unlike American counterparts like OpenAI ChatGPT or Google Gemini, the DeepSeek model works with less specialized computer chips. This efficiency allows the company to deliver a performance comparable to a much lower cost, stimulating confidence in the economic benefits of US technology giants.
According to the Wall Street Journal, DeepSeek’s new R1 model is among the top 10 in the world, despite its simplified development process. The model has grown in application stores around the world, including the United States, where it was downloaded 1.6 million times in January. 25. DeepSeek also has an open source design, which allows developers to freely improve and adapt the software, a feature that has attracted praise from AI experts and criticism from some American model developers.
What impact has this had on US technological actions?
DeepSeek’s fall was immediate and serious for American markets. The Composite Nasdaq, heavily weighted by technological actions, sank 3% in the first exchanges. The average Dow Jones Industrial slipped by more than 100 points, and the S plagaamp; P 500 decreased by 1.5%. In particular, central AI boom companies have hit the market.
Nvidia, a leading chip manufacturer whose hardware power of many advanced AI systems, has seen its actions shake more than 12%. Similarly, Arm Holdings and Advanced Micro Devices (AMD) fell by 8% and 5.5% respectively. The main players in AI, including Microsoft and Alphabet ( Google’s parent company), also faced setbacks, with shares falling by 3.5% and 3% each. These losses interrupted a multi-year increase in technological stocks fuelled by enthusiasm for AI innovations.
Why is DeepSeek so disturbing?
DeepSeek’s disruption stems from its strategic combination of technological capacity and cost-effectiveness. Although traditional American models require vast computer resources, DeepSeek has managed to avoid these requirements, taking advantage of less and less advanced chips. This innovation, according to a report from ABC News, was born despite export controls imposed by the Biden administration that limit China’s access to high-end semiconductors.
Tigress Financial market analyst Ivan Feinseth described DeepSeek’s emergence as the “first shot in a global IA space race.” He highlighted how the company’s approach defies massive investments, with hundreds of billions of dollars, made by U.S. companies in the pursuit of AI. By offering a competitive alternative, DeepSeek made it clear that innovation does not always require costly resources.
American companies lose their advantage?
Despite DeepSeek’s achievements, many experts believe that American companies still have significant benefits. According to Fortune, DeepSeek models remain slightly behind industry leaders such as OpenAI and Google in terms of technical sophistication. However, the rapid advances in DeepSeek technology underscore the need for US companies to adapt quickly to stay at the forefront.
Yann LeCun, Meta’s senior scientist, stressed the importance of open source AI models during the ongoing debate on DeepSeek. In a post about breads, he said:
“It’s not that China’s IV is” surpassing American open source models “but” surpass their own”
This point of view highlights the competitive trend towards collaborative development in AI.
How do global markets respond?
DeepSeek’s rise not only affected American markets, but also caused shock waves in Europe and Japan, with significant technological indices experiencing significant declines. Investors are adjusting the performance expectations of businesses that were previously untouchable due to their AI domain.
Pre-market trade on Monday revealed significant losses through the Board of Directors, with futures contracts for the Splamp composite; P 500 and Nasdaq respectively by 2% and 4%. Analysts described this reaction as a natural consequence of high market expectations that conflict with new disruptors. Callie Cox, Ritcholtz Strategy’s main asset management market, summarizes the situation, saying:
“When expectations are high, a skeptical title can remove the market from its axis. That’s exactly what we see today.”
What’s next for the global AI landscape?
DeepSeek’s success highlighted the growing importance of open source IA models. By reducing entry barriers for developers, this approach could reshape the competitive dynamics of the AI industry. However, it also raises questions about intellectual property, security and the risk of misuse of open source technologies.
Meanwhile, US technology giants are likely to pay more attention to their intensive resource strategies. As IA continues to evolve, the balance between innovation and cost-effectiveness will be critical to maintaining competitive advantages. Nvidia, for example, may need to explore other business models or collaborations to offset the growing competition from companies like DeepSeek.
As AI’s global career grows, it remains to be seen how US and Chinese companies will meet the challenges of technological progress, geopolitical tensions and market expectations. For now, DeepSeek’s rise reminds us that even industry leaders must remain vigilant in the face of emerging competition.
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