A Chinese artificial intelligence company called DeepSeek is grabbing America’s attention. It is sending a shock wave through Wall Street. This is due to its new tech, which some experts say rivals that of OpenAI’s ChatGPT.
DeepSeek is surprising investors. This is due to the low development costs for its AI app. Wedbush Securities analyst Dan Ives pegged these costs at only $6 million. As we know, OpenAI, Google and other major U.S. companies plan to invest about $1 trillion in AI. They are on track to do this over the coming years, according to Goldman Sachs.
On Monday, DeepSeek’s rollout roiled shares of AI stalwarts. This affected Nvidia, the high-flying manufacturer of advanced chips for AI development. It also affected ASML, a Dutch company and another chipmaker. The Chinese company’s tech is asking questions about whether demand for Nvidia’s chips could take a hit. It is also causing experts to question whether investors are overvaluing tech stocks. These stocks are buoyed by the promise of AI, from Meta to Microsoft.
“DeepSeek has taken the market by storm. It has done more with less,” said Giuseppe Sette, president at AI market research firm Reflexivity, in an email. “This shows that with AI the surprises will keep on coming in the next few years.”
DeepSeek’s latest app comes just days after Mr. Trump announced a new $500 billion venture. This involves ChatGPT maker OpenAI, Softbank, and Oracle. The venture is dubbed Stargate. He touted it as ensuring “the future of technology” in the U.S.
Tech stocks have soared on Wall Street’s expectations for AI profits
The tech-heavy Nasdaq composite tumbled on Jan. 27. There are fears that a Chinese artificial intelligence app called DeepSeek could hurt Nvidia. Other firms that have invested billions in developing AI chips and tools might also be affected.
AI-related stocks took a hit on Monday morning, with Nvidia shares tumbling 17% as of 2:08 p.m. Eastern Time while ASML shed 7.6%. The tech-heavy Nasdaq index slumped 3.5%, or 698 points, in afternoon trade, while the S&P 500 declined 1.7%. The blue-chip Dow Jones Industrial Average added 0.4%.
The Nasdaq experienced a sharp drop. Although, it’s far from the worst day for the index during the past five years. The worst one-day decline since Jan. 27, 2020, came on March 16, 2020, when the index plunged more than 12% as COVID-19 pandemic hit the economy.
What is DeepSeek?
DeepSeek is a private Chinese company founded in July 2023 by Liang Wenfeng. He is a graduate of Zhejiang University, one of China’s top universities. Liang funded the startup via his hedge fund, according to the MIT Technology Review. Liang has about $8 billion in assets, Ives wrote in a Jan. 27 research note.
Liang had previously focused on applying AI to investing. He had bought a “stockpile of Nvidia A100 chips.” This is a type of tech that is now banned from export to China. Those chips became the basis of DeepSeek, the MIT publication reported.
Ben Reitzes is the head of technology research at Melius. He told investors in a note that DeepSeek makes legitimate breakthroughs as an AI tool. These breakthroughs include better learning and more efficient use of memory. However, he expressed skepticism about the “amount of chips used.”
Is DeepSeek available in the U.S.?
The company’s AI app is available in Apple’s App store, as well as online at its website. The service is free. As of Monday morning, it was the top download on Apple’s store. However, some people were having trouble signing up for the app.
On its Chinese site, DeepSeek blamed “large-scale malicious attacks” on its service, requiring it to temporarily limit new registrations. “Existing users can log in as usual,” the company said in the post, which was dated shortly after midnight Jan. 28 in China’s local time.
The company released its latest AI model on Jan. 20, which is causing Wall Street to reappraise the AI sector.
“Last week DeepSeek launched a model that rivals OpenAI’s ChatGPT and Meta’s Llama 3.1 and was #1 on Apple’s App Store over the weekend,” Wedbush’s Ives wrote. “DeepSeek built the model using reduced capability chips from Nvidia. which is impressive and thus has caused major agita for U.S. tech stocks with massive pressure on Nasdaq this morning.”
How is DeepSeek different than other AI apps?
DeepSeek is an open-source large language model. It relies on what is known as “inference-time computing.” Sette said in layman’s terms “they activate only the most relevant portions of their model for each query. This saves money and computation power.”
Some experts praised DeepSeek’s performance, with noted tech investor Marc Andreessen writing on X on Jan. 24, “DeepSeek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen. As open source, it is a profound gift to the world.”
However, Ives said he’s skeptical the service will gain ground with major U.S. businesses.
“No U.S. Global 2000 is going to use a Chinese startup DeepSeek. They plan to launch their AI infrastructure and use cases,” Ives wrote. “At the end of the day, only one chip company in the world is launching autonomous and robotics use cases. They are also launching broader AI use cases. That company is Nvidia.”
What does DeepSeek mean for Nvidia and other tech companies?
Wall Street is trying to assess the long-term impact of a low-cost AI tool from China. This tool rivals ChatGPT and other so-called generative AI apps. It also raises questions about overspending in Silicon Valley on tech advancements. Angelo Zino, senior equity analyst at CFRA Research, noted this in an email.
“The fact that this technology is supposed to take less energy and is more cost-effective than U.S.-based models has U.S. technology investors very concerned,” Jay Woods, chief global strategist at Freedom Capital Markets, said.
It’s also unclear what type of pushback or reaction could come from the White House, given that Mr. Trump has raised the possibility of placing new tariffs on Chinese imports. He also gave the Chinese-owned TikTok a reprieve by ordering the Justice Department not to enforce a looming ban.
In the meantime, major tech companies, including Meta and Microsoft, are slated to report earnings this week. Investors will likely hear more from their executives about their AI plans. Executives will also share their thoughts on DeepSeek, experts said.
Some Wall Street analysts think Monday’s stock selloff is an overreaction. They note that the enormous demand for AI will continue lifting key players in the sector.
“It’s one thing to train a [large language] model for less money. However, meeting the huge demand for consuming all this AI technology requires a lot of infrastructure. Massive amounts of infrastructure will still be needed,” Adam Crisafulli of Vital Knowledge said in a report.
