China’s low cost AI start-up DeepSeek ‘that’s pretty much as good as ChatGPT’ spooks Silicon Valley and triggers $1trillion market meltdown
Big tech firms are in panic mode as $1trillion is wiped from stocks hours after Chinese startup DeepSeek triggered market meltdown with its new Artificial Intelligence.
DeepSeek sent shockwaves through Silicon Valley last week as it launched a free AI Assistant, which it says uses less data at a fraction of the cost of current models on the market.
This AI overtook its rival ChatGPT to become the most-downloaded free application available on the Apple Store in the US on Monday.
Meanwhile, shares in existing AI players are tumbling, as this new product casts doubt on Western dominance in the sector.
Investors hammered technology stocks at the start of the week, sending the likes of AI chipmaker Nvidia and its rival Oracle plummeting.
Nasdaq 100 futures, which are essentially trades taking place before the market officially opens and thus affecting the opening price of companies within it, dropped more than four per cent on Monday morning.
This suggests the index could see its biggest slide since September 2022 later on, if those losses are sustained. Those on the 500 dropped by two per cent.
Shares in Nvidia fell by a whopping 10 per cent and Oracle did not fair much better at 8 per cent, while AI data analytics company Palantir lost 7 per cent in pre-market trading.
DeepSeek (logo pictured) sent shockwaves through Silicon Valley last week as it launched a free AI Assistant, which it says uses less data at a fraction of the cost of current models on the market
DeepSeek founder Liang Wenfeng (right) speaks at the symposium presided by Chinese Premier Li Qiang to hear opinions and suggestions on a draft government work report on January 20, 2025
The emergence of DeepSeek’s viable, cheaper AI alternative may mark a turning point in the level of spending and investment needed for AI.
Marc Andreessen, the Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek’s R1 model was AI’s ‘Sputnik moment’, referencing the former Soviet Union’s launch of a satellite that marked the start of the space race in the late 1950s.
In a separate post, he said: ‘Deepseek R1 is one of the most amazing and impressive breakthroughs I´ve ever seen – and as open source, a profound gift to the world.’
Indeed, DeepSeek is upending widely held views about US primary in AI and the effectiveness of Washington’s export controls targeting China’s advanced chip and AI capabilities.
The company has said its R1 and V3 models performed better than or close to leading Western models, despite using inferior chips.
DeepSeek said last week that the performance of its latest R1 model was on par with OpenAI’s o1-mini model that the ChatGPT maker released in September.
The announcement came after DeepSeek said in a late-December report that it used a cluster of more than 2,000 Nvidia chips to train its V3 model, compared with the tens of thousands of chips that are normally used for training models of a similar size.
Firms like OpenAI, Meta, Google, Apple, and Microsoft will now have to face up to this new competitor.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, said: ‘We still don´t know the details and nothing has been 100% confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $100 million+ to this alleged $6 million number this is actually very positive for productivity and AI end users as cost is obviously much lower meaning lower cost of access.’
Big tech firms like OpenAI (CEO Sam Altman pictured) are in panic mode as $1trillion is wiped from stocks hoursDeepSeek triggered market meltdown with its new AI
Companies like Google (CEO Sundar Pichai pictured) will now have to face down a brand new competitor
The hype around AI has powered a huge inflow of capital into the equity markets in the last 18 months in particular, as investors have bought into the technology, inflating company valuations and sending stock markets to record highs.
Little is known about the small Hangzhou startup behind DeepSeek. Its researchers wrote in a paper last month that the DeepSeek-V3 model, launched on January 10, used Nvidia’s H800 chips for training, spending less than $6 million – the figure referenced by Pictet’s Withaar.
Its creators say the app “tops the leaderboard among open-source models and rivals the most advanced closed-source models globally”.
H800 chips are not top-of-the-line. Initially developed as a reduced-capability product to get around restrictions on sales to China, they were subsequently banned by US sanctions
In Europe, ASML which counts Taiwan’s TSMC , Intel and Samsung as its customers, dropped almost 11.
In Japan, startup investor SoftBank Group slid more than 8%. Last week it announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI.
Big tech has ramped up spending on developing AI capabilities and optimism over the possible returns has driven stock valuations sky-high.
Nvidia alone has risen by over 200% in about 18 months and trades at 56 times the value of its earnings, compared with a 53% rise in the Nasdaq, which trades at a multiple of 16 to the value of its constituents’ earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capex spend of the major tech companies.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management said: ‘The idea that the most cutting-edge technologies in America, like Nvidia and ChatGPT, are the most superior globally, there’s concern that this perspective might start to change.’
‘I think it might be a bit premature,’ Ichikawa said.
DeepSeek, established in 2023, is just over a year old.
