The launch of Chinese AI startup DeepSeek’s latest AI model has sparked a dramatic selloff in US and European tech stocks, with a staggering $1 trillion wiped from their valuations. Investors are questioning the massive spending plans of tech giants like Microsoft, Meta, and Nvidia, which have fueled the recent AI boom.
DeepSeek’s model, which quickly climbed to the top of Apple’s App Store rankings, has gained traction for its cost-effectiveness compared to existing offerings from OpenAI and Meta Platforms. The development raises concerns over the viability of heavy investments in AI infrastructure and chips.
Nvidia, the world’s most valuable company, saw its shares plunge over 10% in premarket trading, threatening to erase $340 billion in market value. Nasdaq 100 futures fell as much as 5.2%, with Europe’s tech-heavy Stoxx 600 technology sub-index also dropping sharply. Chipmaker ASML fell 12%, and the Nasdaq volatility index (VIX) surged to 21.5.
"This model shows it's possible to develop powerful AI solutions at a fraction of the cost," said Vey-Sern Ling of Union Bancaire Privee. "This could undermine the high-spending AI business model."
DeepSeek’s new app has impressed users and investors alike with its transparency, showing reasoning behind answers. Founded by Chinese quant fund chief Liang Wenfeng, the AI startup has become a symbol of China’s competitive strength in AI, which many assumed lagged behind US counterparts.
DeepSeek’s success also highlights its reliance on open-source technology, circumventing US trade restrictions that had blocked China from accessing cutting-edge chips.
DeepSeek’s emergence challenges Silicon Valley’s capital-intensive approach to AI. Its efficient model disrupts assumptions about the need for massive spending on computing power and energy, raising questions about whether companies like Nvidia can sustain dominance.
"This raises serious questions about whether the significant AI capital expenditures by US tech firms are justified," said Nirgunan Tiruchelvam of Aletheia Capital.
