Chinese AI App Causes US Tech Stocks to Plunge

A Chinese AI company called DeepSeek announced an advanced, inexpensive large-language model which caused US stocks to slump.

“DeepSeek has taken the market by storm by doing more with less,” said Giuseppe Sette, president at AI market research firm Reflexivity, in an email to CBS. “This shows that with AI the surprises will keep on coming in the next few years.”

DeepSeek claims its large language model has capabilities comparable to popular AI models but without the hefty development costs. Namely, DeepSeek’s AI app cost only $6 million to develop, according to Wedbush Securities analyst Dan Ives. On the other hand, Goldman Sachs reported that OpenAI, Google, and other US big tech companies are on track to invest a whopping $1 trillion in AI in the coming years.

The new Chinese AI sparked a debate about whether investors are overvaluing US tech stocks amid the AI frenzy. Additionally, it fueled concerns about chipmaker Nvidia’s demand plummeting, especially after speculations it aims for a new chip every year.

In fact, Nvidia, which is working on a chip for the Chinese market, took the hardest hit, with its stocks dropping 17.4% and losing $600 billion in value. This marked the biggest one-day loss for a company ever recorded on the stock market. Other semiconductor stocks suffering significant losses include Broadcom (down 17%) and ASML (down 6%). As a result, the Nasdaq composite fell by 3.5% and the S&P 500 by 1.8%, marking its worst day in over a month.

DeepSeek’s AI app also affected some energy-related stocks due to worries that the new technology could require less energy to run, lowering the demand from the tech sector. GE Vernova, which makes wind and gas turbines, and electricity generator Vistra, were most affected, plunging 21% and 28%, respectively.

DeepSeek’s AI app is already topping the chart for free apps on Apple’s App Store, which is particularly impressive given the intense efforts by the US government to restrict Chinese access to top AI chips.

Chinese-born Liang Wenfen founded DeepSeek in 2023 via his hedge fund. According to an MIT Technology Review, Liang bought a “stockpile of Nvidia A100 chips” before they were banned from export to China, and those exact chips have been used to build the AI technology that shook up Wall Street.