Chinese AI wave hits Wall Street: Nvidia loses $500 billion as DeepSeek shakes US tech market
The downturn followed the emergence of a low-cost generative AI model by DeepSeek, a Hangzhou-based Chinese startup. The announcement not only triggered a significant sell-off in US tech stocks but also raised concerns about the United States' dominance in the AI industry.
FollowIn a dramatic turn of events, Nvidia, the world's most valuable artificial intelligence (AI) company, on Monday (January 27) saw its market value plummet by over $500 billion. The downturn followed the emergence of a low-cost generative AI model by DeepSeek, a Hangzhou-based Chinese startup. The announcement not only triggered a significant sell-off in US tech stocks but also raised concerns about the United States' dominance in the AI industry.
DeepSeek challenges US AI supremacy:
DeepSeek's breakthrough comes in the form of a chatbot that, according to the company, matches the capabilities of leading US models at a fraction of the development cost. While US tech giants like OpenAI, Microsoft, and Google have poured billions into creating their AI models, DeepSeek claims its chatbot was developed for just $5.6 million.
The model's efficiency and performance, coupled with its swift rise to become the most downloaded free app on Apple's US. App Store, have amplified concerns about the competitive edge of American AI companies. Nvidia, a critical chip supplier to the AI industry, bore the brunt of the market backlash, with its shares tumbling 14.4%.
Market ripple effects:
The shockwaves from DeepSeek's announcement reverberated across global markets:
- Microsoft and Alphabet (Google's parent company) experienced declines, while Meta Platforms bucked the trend and ended in the green.
- Semiconductor manufacturers like Broadcom and ASML suffered steep losses of 16% and 6.7%, respectively.
- In Asia, Japan's SoftBank dropped 8.3%, reversing gains from a recent AI infrastructure investment, while semiconductor firms Advantest and Tokyo Electron saw declines of over 8% and 5%.
- The Nasdaq Composite fell 2.8%, while the broader S&P 500 lost 1.7%, marking its worst day in over a month. Nvidia's loss alone accounted for one of the largest single-stock market cap declines in history, dragging the Nasdaq 100 index down by more than 3%.
A 'Sputnik Moment' for US tech:
DeepSeek's rise has been described by some analysts as a "Sputnik moment," signaling a potential challenge to US technological leadership in AI. The development raises critical questions about the future of capital expenditure, valuations, and the competitive dynamics in the global AI sector.
Despite these concerns, some experts remain skeptical about the long-term impact of DeepSeek on the AI supply chain. Dan Ives, an analyst at Wedbush Securities, pointed to uncertainties about DeepSeek's ability to circumvent restrictions on access to advanced US AI chips.
Mounting market uncertainty:
The turbulence comes at a time of heightened market sensitivity. Major tech firms, including Meta, Microsoft, and Apple, are slated to release earnings reports this week, which could further influence investor sentiment. Additionally, upcoming interest rate decisions by the US Federal Reserve and European Central Bank, along with inflation data, add layers of complexity to the market outlook.
Trade tensions between the US and China, including threats of tariffs and visa restrictions, exacerbate the uncertainty, creating a challenging environment for tech investors.
A test for AI's market hype:
The rapid rise and subsequent shake-up caused by DeepSeek mark a stark reversal for AI-related stocks, which had surged over the past few years. Nvidia, for instance, had seen its stock price multiply several times during the AI boom.
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