Wall Street faced a major shock on Monday as Chinese AI startup DeepSeek emerged as a formidable competitor, triggering a sell-off in US tech stocks. NVIDIA, one of the biggest beneficiaries of the AI boom, saw its stock plunge by 17.95%, to $117.02 at 3pm EST. This development came after DeepSeek, a Chinese startup founded in 2023, announced its latest AI model, R1, which reportedly matches US-developed models like OpenAI’s ChatGPT at a fraction of the cost.
The news unsettled investors, who fear that such advancements could disrupt the lucrative AI supply chain that has driven Silicon Valley’s growth. “This is AI’s Sputnik moment,” venture capitalist Marc Andreessen told news agency AP.
The impact was immediate and widespread. The S&P 500 dipped 1.7%, with tech stocks suffering the brunt of the losses. Shares of Microsoft and Meta Platforms, both heavily invested in AI infrastructure, saw sharp declines, while bond yields fell as investors sought safer assets.
What we know so far:
Nvidia plummets 17%, Alphabet loses 4.26%
Monday saw a sharp decline in tech stocks, with Nvidia leading the rout, dropping 17.25% to $117.94. Broadcom followed closely, plunging 17.37%, as fears over DeepSeek’s AI advancements rattled the sector. Microsoft slid 2.46%, Tesla dropped 3.5%, and Alphabet lost 4.26%. While Apple managed to gain 3.72%, the broader tech-heavy Nasdaq Composite fell 3.2%.
DeepSeek’s rise to prominence
DeepSeek gained international attention after its AI assistant app climbed to the top of Apple’s free app chart in the US over the weekend. The company claims its R1 model demonstrates advanced reasoning abilities, similar to OpenAI’s most expensive systems, but at a fraction of the cost. Analysts have noted that DeepSeek may have bypassed US-imposed restrictions on accessing NVIDIA’s cutting-edge chips, a claim that remains under scrutiny.
Gregory Allen of the Center for Strategic and International Studies said, “The timing of DeepSeek’s release is strategic, potentially undermining US efforts to maintain technological dominance through export controls.”
Investor concerns
NVIDIA’s dramatic 17% slump highlights growing investor fears that the AI gold rush, which had propelled the company to a trillion-dollar valuation, could be under threat. The company’s stock had soared from under $20 to over $140 in just two years, fuelled by explosive demand for AI chips.
“This news questions the economics of AI investments,” said analyst Kathleen Brooks of XTB. “If China can produce comparable models so cheaply, US tech giants may need to reassess their strategies.”
Global repercussions
DeepSeek’s announcement also rattled international markets. Dutch semiconductor equipment maker ASML saw its shares drop 7%, while Japan’s SoftBank fell 8.3%. In the US, Constellation Energy shares plummeted nearly 20% after the company announced plans to restart a nuclear plant to power AI data centres.
Accusations and scepticism
Amid the panic, industry figures like Elon Musk have raised suspicions that DeepSeek may have secretly accessed banned NVIDIA H100 chips. However, Hong Kong-based investor Jen Zhu Scott dismissed these claims, stating, “It sounds like a rich kids’ team got outplayed by a poor kids’ team.”
Bernstein analyst Stacy Rasgon remained cautious, saying, “DeepSeek’s models are impressive but not miraculous. The market reaction appears overblown.”