In a dramatic turn of events, global investors pulled back from tech stocks on Monday, reacting to the rise of a new low-cost Chinese AI model, DeepSeek, which has the potential to disrupt the dominance of AI leaders like Nvidia. The chipmaker suffered an unprecedented $593 billion loss in market value, setting the record for the largest single-day loss of any company on Wall Street.
DeepSeek, a Chinese startup, made headlines last week with the launch of its free AI assistant, boasting impressive capabilities at a fraction of the cost compared to existing services. By Monday, the DeepSeek assistant had surpassed its US rival, ChatGPT, in terms of downloads from the Apple App Store.
The widespread selloff was felt across major tech stocks. The Nasdaq, heavily weighted with technology companies, dropped 3.1% on Monday. Nvidia’s shares fell nearly 17%, marking a historic one-day loss in its market capitalization. Broadcom followed suit with a 17.4% drop, while Microsoft and Alphabet, the parent company of Google, saw declines of 2.1% and 4.2%, respectively. The Philadelphia semiconductor index fell by 9.2%, its largest decline since March 2020, with Marvell Technology facing the steepest drop, down 19.1%.
The global market turmoil began in Asia, where Japan’s SoftBank Group saw an 8.3% drop, and continued into Europe, with ASML falling 7%. Investors are concerned that DeepSeek’s breakthrough, with its cheaper and more efficient AI models, could significantly reduce the demand for expensive chips, power production, and large-scale data centers, potentially disrupting the AI market that has fueled impressive stock gains over the last two years.
“If DeepSeek proves to be a ‘better mousetrap,’ it could disrupt the entire AI narrative that has driven markets for the past two years,” said Brian Jacobsen, chief economist at Annex Wealth Management. “It could mean less demand for chips, power production, and large-scale data centers.”
The rapid growth of AI-driven stocks in recent months, particularly those linked to companies like Nvidia and Broadcom, has been one of the defining trends in the market. Capital has flowed into AI-related equities, driving valuations and stock prices to new highs. Just last Wednesday, US AI-related stocks saw a surge after former President Donald Trump unveiled a $500 billion private-sector plan for AI infrastructure under the Stargate venture, which includes major players like SoftBank, ChatGPT developer OpenAI, and Oracle.
However, the announcement of DeepSeek’s advancements has added fuel to concerns that its AI models, which are designed to be more affordable, could make current models from established companies like OpenAI and Google’s Alphabet less competitive. The affordability of DeepSeek’s models has changed the perception of Chinese AI technology in Silicon Valley, with some executives praising its quality and cost-effectiveness.
DeepSeek’s models, such as the DeepSeek-V3, launched on January 10, were trained using Nvidia’s lower-capability H800 chips, which cost under $6 million. DeepSeek-R1, released last week, has been described as 20 to 50 times cheaper to use than OpenAI’s models, further intensifying concerns over the future of major AI players in the US.
Marc Andreessen, a prominent Silicon Valley venture capitalist, called DeepSeek’s R1 model “AI’s Sputnik moment,” drawing parallels to the moment in history when the Soviet Union’s space program shocked the world with its own technological breakthroughs.
Despite the selloff, some investors see the market’s reaction as an overreaction. Daniel Morgan, senior portfolio manager at Synovus Trust Company, argued that DeepSeek’s models, designed primarily for mobile phones and PCs, mainly compete with ChatGPT and Alphabet’s Gemini. He emphasized that Nvidia, AMD, Broadcom, and other chipmakers remain essential for powering large-scale data centers, which are still integral to the global AI infrastructure.
Nvidia’s stock closed at $118.42 on Monday, down by $24.20, bringing its year-to-date losses to 11.8%. However, the stock managed to recover slightly in after-hours trading, climbing 2.5%.
Other stocks, particularly in the data center and power utility sectors, were also hit hard. Vertiv Holdings, a company that builds data center infrastructure, saw its stock fall by 29.9%. Power utility companies, including Vistra, Constellation Energy, and NRG Energy, suffered sharp declines as well, losing 28.3%, 20.8%, and 13.2%, respectively.
As the market navigated this volatility, investors flocked to safe-haven assets like US Treasury bonds. The 10-year Treasury yield fell to 4.53%, while the Japanese yen and Swiss franc gained against the US dollar, reflecting a shift in investor sentiment away from riskier tech stocks.
Despite these uncertainties, some remain hopeful about the potential of DeepSeek’s model to revolutionize the AI space. Still, the future of AI remains uncertain, and many are closely watching how the industry’s key players—especially Nvidia—respond to the emerging competition. The broader implications of DeepSeek’s success could reshape the entire tech landscape, affecting everything from chip manufacturers to power production and data center operations.