The release of a less capital-intensive artificial intelligence model from China has sent tremors through the U.S. stock market. On Monday, a massive selloff led by Nvidia battered tech stocks and caused significant financial losses for billionaires.
Jevons paradox strikes again! As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of. https://t.co/omEcOPhdIz
— Satya Nadella (@satyanadella) January 27, 2025
Nvidia CEO Jensen Huang delivered a keynote address at the Consumer Electronics Show (CES) in Las Vegas, Nevada, amidst the turmoil.
I don’t fully understand why the market is (maybe?) reacting to DeepSeek the way it is, but, if the thesis is that AI development & applications is plummeting in cost, the real impacts are outside of the AI/chip firms.
Which organizations can use this form of intelligence best?
— Ethan Mollick (@emollick) January 27, 2025
An observer cited the event as evidence that the Biden administration’s four-year crackdown on China’s AI and computing power has not only failed but also spurred the country to innovate robustly. People within China’s tech industry praised DeepSeek’s success. Feng Ji, co-founder of Game Science, lauded DeepSeek on Weibo, stating, “DeepSeek may be a scientific and technology achievement that can change a nation’s fate.”
Despite Monday’s record selloff, Nvidia’s share prices rebounded in early trading on Tuesday, climbing more than 5% to $124.60.
A lot of the discussion over DeepSeek focuses on which companies win & lose. For everyone not working at an AI lab, the implications are a little clearer: we will continue to see accelerated AI development, & the odds of hitting major roadblocks decreases as more labs experiment
— Ethan Mollick (@emollick) January 26, 2025
Other chip stocks like AMD and Broadcom also trended upwards. On Monday evening, Nvidia commented on DeepSeek, describing it as an “excellent AI advancement” and highlighting how new AI models can be developed using “widely-available models” while ensuring compliance with U.S. export controls. OpenAI CEO Sam Altman commended DeepSeek’s R1 model as “impressive,” particularly in terms of cost-efficiency.
However, he remained confident that OpenAI would continue to lead in the development of superior models.
DeepSeek’s impact on tech markets
President Donald Trump, at a House Republican retreat, referred to the AI model’s launch as a “positive development,” urging U.S. industries to view it as a “wake-up call” to innovate more efficiently.
The DeepSeek-driven stock market plunge wiped tens of billions off the fortunes of the world’s wealthiest people, including Oracle’s Larry Ellison and Nvidia’s Jensen Huang. Oracle’s Ellison saw a net worth drop of $27.6 billion, while Nvidia’s Huang lost $20.8 billion. The selloff caused the S&P 500 to close down 1.5% and the tech-heavy Nasdaq to plunge just over 3%, marking one of its worst days since December 18.
Nvidia suffered a historic 17% drop, losing $589 billion in market cap, alongside significant losses for Broadcom and Taiwan Semiconductor Manufacturing Company. Market analysts remarked on the broader implications of DeepSeek’s emergence. JPMorgan analyst Sandeep Deshpande noted how DeepSeek’s low-cost success could signify an over-hyped AI investment cycle and hint at a more efficient technological future.
Ed Yardeni, founder of Yardeni Research, described the competitive threat posed by DeepSeek to the U.S. tech giants spearheading the AI market. DeepSeek’s R1 model, introduced on January 20, rivaled top models from OpenAI and Meta across several benchmarks, despite being developed at a fraction of the cost. It demonstrated advanced reasoning skills in mathematical tasks and general knowledge assessments, ranking in the top five on a performance platform hosted by the University of California, Berkeley.
In summary, DeepSeek’s breakthrough AI model has roiled markets and sparked a reevaluation of the competitive landscape in AI development, challenging the dominance of U.S. tech giants and highlighting the need for ongoing innovation and cost-efficiency.
