A new challenger has emerged in the AI landscape, sending shockwaves through the tech industry. DeepSeek, a Chinese startup, has developed a low-cost generative AI model that rivals US-based industry leaders. This sudden disruption has led to a significant decline in tech stocks, with Nvidia bearing the brunt of the losses.

Nvidia’s Shares Plummet 15%

Nvidia’s shares fell by over 15% in midday trading on Wall Street, resulting in a staggering $500 billion loss in market value. The tech-rich Nasdaq index also declined by more than 3%, with other AI players like Microsoft and Google parent Alphabet experiencing significant losses.

DeepSeek’s AI Model: A Game-Changer?

DeepSeek’s chatbot has demonstrated capabilities comparable to US AI pace-setters, but at a fraction of the cost. The startup claims to have spent only $5.6 million developing its model, a stark contrast to the billions invested by US tech giants. This has raised concerns about US dominance in the AI industry being challenged by China.

Expert Insights

Kathleen Brooks, research director at XTB, noted that US tech dominance is being challenged by China, and the focus is now on whether China can surpass the US in AI development. Marc Andreessen, a US venture capitalist, described DeepSeek’s emergence as a “Sputnik moment,” referencing the Soviet Union’s surprise launch of a satellite into orbit in 1957.

Market Reactions

The emergence of DeepSeek has forced investors to reassess the outlook for capital expenditure and valuations in the AI industry. Broadcom’s shares fell 16%, while ASML’s stock declined 6.7%. The S&P 500 index shed 1.7%, and the Dow remained flat at midday.

Trump’s AI Infrastructure Venture

Just last week, Trump announced a $500 billion venture to build AI infrastructure in the US, led by Japanese giant SoftBank and ChatGPT-maker OpenAI. This development aims to bolster US competitiveness in the AI industry, but the emergence of DeepSeek has raised questions about the effectiveness of this initiative.