DeepSeek is Sending US Stocks Plunging

A Chinese artificial intelligence startup called DeepSeek made a surprising breakthrough that threatened the perception of America’s technology industry’s invincibility, causing US equities to plunge sharply Monday morning.

The one-year-old firm DeepSeek demonstrated an amazing talent last week: It introduced the R1 AI model, which functions similarly to ChatGPT and has all the well-known features at a fraction of the cost of the well-known AI models like OpenAI, Google, or Meta. In contrast to US corporations that invest hundreds of millions or billions of dollars in AI technologies, the company claimed to have only spent $5.6 million training its most recent AI model.

Monday, the tech industry was rocked by that. Meta announced last week that it would invest more than $65 billion in AI development this year. Sam Altman, the CEO of OpenAI, stated last year that the development of the highly sought-after semiconductors required to power the electricity-hungry data centers that house the industry’s intricate models will require trillions of dollars in investment.

Trump supporter and top tech investor Mark Andreesen described DeepSeek as “one of the most amazing and impressive breakthroughs I’ve ever seen” in a post on X.

The astounding accomplishment by a little-known AI startup is all the more startling in light of the fact that the US has been trying for years to limit China’s access to high-power AI chips due to national security. Thus, DeepSeek was able to use underpowered AI chips to achieve its low-cost model.

U.S. tech stocks were severely damaged on Monday morning. Premarket trading saw a 12% decline in Nvidia (NVDA), the top producer of AI processors, whose shares more than doubled in the last two years. Google’s parent firm, Meta (META), along with Marvell, Broadcom, Palantir, Oracle, and numerous other tech behemoths, also experienced a significant decline.

That impacted the overall stock market since tech stocks account for a large portion of the market; according to Keith Lerner, an analyst at Truist, tech makes up roughly 45% of the S&P 500. Futures for the S&P 500 were expected to drop 2.4% at market opening, while the tech-heavy Nasdaq was expected to open 4.2% lower. The last time the Nasdaq closed 4% lower was in September 2022. The Dow was expected to start the day roughly 400 points, or 0.9%, lower.

According to Lerner, the US’s outstanding achievement has been mostly due to technology and the country’s leadership in artificial intelligence. As a result of the DeepSeek model deployment, investors are beginning to doubt the dominance of US corporations, the amount of money being spent, and whether or not that expenditure will result in profits (or expenditures).

The internet giants’ reaction to the DeepSeek shock might cause market turbulence in the days and weeks ahead, as this week marks the start of a string of earnings reports.

But even if it’s a huge accomplishment, it might not be enough to undo years of advancement in American AI leadership. Furthermore, a significant consumer move to a Chinese startup is not likely. Therefore, the market selloff might have been a little excessive, or maybe investors were just seeking a reason to sell.

“The race to see what technology works and how the big Western players will respond and evolve is on,” said Michael Block, market strategist at Third Seven Capital, adding that only time will tell if the DeepSeek threat is real. At the start of the Trump 2.0 era, markets had become overly comfortable and might have been searching for a reason to retreat, and they found a good one in this case.

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