Tech stocks sank Monday morning as fears grew that Chinese artificial intelligence firm Deepseek leapfrogged the United States’ dominance in AI development.
The Nasdaq Composite, which tracks the country’s largest technology companies, fell more than 3%. The Dow fell less than points and the S&P 500 fell almost 2%.
The sell-off was sparked by advances claimed by China’s Deepseek, which launched an open-source AI model in December, after saying it took just two months and less than $6 million to create. Those claims would be far less than the hundreds of billions of dollars that American tech giants like OpenAi, Microsoft, Meta and others have spent developing their own models, fueling fears that China could overtake the United States in the scale and efficiency of your AI Investments.
The Deepseek app is now the best free app on the Apple App Store, pushing OpenAi’s chatgpt into second place.
Among the biggest losers in the stock market crash: chipmaker Nvidia, whose shares plunged as much as 18%. Nvidia has been among the best performers of late, with shares soaring more than 200% over the course of the last two years, making it one of the largest companies in the world. Nvidia’s downfall would erase more than $500 billion in market value from the company. If its shares close at these levels, it would be the largest market value drop in U.S. securities history, according to Bloomberg.
Other semiconductor companies also saw significant losses. Micron Technology and Arms holdings fell 7%, while ASML slid 9%.
Mega-capital tech companies also felt the pain, with Microsoft and Google parent Alphabet falling 4%. Meta Platforms, which is developing its own open source AI model, fell almost 2%.
Concerns about Deepseek’s alleged advances come despite export controls on sales of advanced semiconductors to China.
Speaking at the World Economic Forum last week, Microsoft CEO Satya Nadella said Deepseek’s advances appeared to be “super impressive… and super efficient computing.” “We should take China developments very, very seriously,” Nadella added.
By the end of 2024, Microsoft said it planned $35 billion in investments to build “Reliable and Secure Cloud and AI Data Center Infrastructure.”
Constellation Energy, which signed a deal with Microsoft to restart the island’s three-mile nuclear plant to power artificial intelligence servers, sank 16%. Shares of other power companies seen as beneficiaries of AI such as Vistra Energy and NRG Energy also fell sharply. Siemens Energy, which makes equipment for utilities, fell 20%. Ge Vernova, another power equipment maker, fell more than 23%.
Not everyone is convinced by Deepseek’s ads. “We believe that… Deepseek did not ‘build OpenAi for $5 million,'” Bernstein analyst Stacy Rasgon wrote in a note to clients on Monday. “The models look fantastic, but we don’t think they are miracles.”
Giuseppe Sette, president of AI market research firm Reflexivity, said the underlying technology for Deepseek appears to be “extremely optimistic in the long term” because it could be a playbook for other AI companies in the future.
“Deepseek has taken the market by storm by doing more with less. In layman’s terms, they activate only the most relevant parts of their model for each query, and that saves money and computing power. This shows that with AI the surprises will keep coming in the years to come,” Sette wrote in a note on Monday.
