Chinese AI Firm DeepSeek Deep-Sixes US Tech Stocks

Tech stocks plunged Monday (Jan. 27) following a new AI model from China’s DeepSeek.

As the Financial Times (FT) reported, DeepSeek’s latest large language artificial intelligence (AI) model has sowed doubt about the U.S.’s ability to maintain its position as AI leader by spending billions on chips.

The new DeepSeek model achieved a comparable performance to those of U.S. rivals OpenAI and Meta but reportedly claims to use substantially fewer Nvidia chips.

This news rocked markets Monday. Nvidia was on track to lose more than $300 billion in market value, the FT said — the largest recorded drop for any company — with investors reconsidering the need to invest in AI hardware.

“DeepSeek R1 is AI’s Sputnik moment,” venture capital investor Marc Andreessen wrote on X, an apparent reference to the Soviet Union’s early space race victory in 1957, prompting the U.S. to create NASA.

As of Monday morning, DeepSeek’s new AI model had supplanted OpenAI’s ChatGPT as the most popular free app on the Apple App Store, per a separate report by Reuters.

The FT report notes that the stock rout included companies such as Microsoft and Meta, as well as firms beyond the traditional tech sector. For example, Siemens Energy, which provides electrical hardware for AI infrastructure, fell 22%.

“It’s DeepSeek for sure,” said one Tokyo-based fund manager in reference to the sell-off, adding that investors were scrambling to determine whether hardware spending on AI could ultimately be much lower than current projections.

The report, citing figures from UBS, said AI investment by large-cap tech companies in the U.S. reached $224 billion in 2024, with that number expected to climb to $280 billion this year.

Last week, OpenAI, SoftBank and Oracle announced they would invest $500 billion over the next four years in AI infrastructure, a joint venture dubbed “Stargate.”

“It shows how vulnerable the AI trade still is, like every trade that is consensus and based on the assumption of an unassailable lead,” Luca Paolini, chief strategist at Pictet Asset Management, told the FT.

The news comes amid a changing AI landscape in the U.S., with  President Donald Trump last week repealing predecessor Joe Biden’s 2023 AI regulations on his first day in office last week.

“Trump’s reversal marks a significant policy shift that is lighter on regulations and guardrails and more pro-growth and pro-innovation,” PYMNTS wrote. “However, it is unclear how his repeal of Biden’s executive order will be enacted on the grounds that federal agencies that already have instituted such policies. Notably, Trump established the first executive order on AI during his first term in office.”

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