The race for domination in artificial intelligence was blown wide open on Monday after the launch of a Chinese chatbot wiped $1 trillion from the leading US tech index. An investor described this event as a “Sputnik moment” for the world’s AI superpowers. Investors punished global tech stocks after the emergence of DeepSeek, a competitor to OpenAI and its ChatGPT tool, shook faith in the US artificial intelligence boom by appearing to deliver the same performance with fewer resources.
The tech-heavy Nasdaq composite index fell just over 3% in afternoon trading in New York, representing a loss of approximately $1 trillion from its closing value of $32.5 trillion last week, as investors digested the implications of the latest AI model developed by DeepSeek. Nvidia, a leading maker of the computer chips that power AI models, was overtaken by Apple as the most valuable listed company in the US after its shares fell 17%, wiping nearly $600 billion off its market value. Google’s parent company lost $100 billion and Microsoft $7 billion. Nvidia’s fall was the biggest in US stock market history.
The DeepSeek AI assistant also topped the Apple app store in the US and UK over the weekend, above OpenAI’s ChatGPT. DeepSeek claims to have used fewer chips than its rivals to develop its models, making them cheaper to produce and raising questions over a multibillion-dollar AI spending spree by US companies that has boosted markets in recent years.
The company developed bespoke algorithms to build its models using reduced-capability H800 chips produced by Nvidia. Nvidia’s most advanced chips, H100s, have been banned from export to China since September 2022 by US sanctions. Nvidia then developed the less powerful H800 chips for the Chinese market, although they were also banned from export to China last October. DeepSeek’s success at building an advanced AI model without access to the most cutting-edge US technology has raised concerns about the efficacy of Washington’s attempts to stymie China’s hi-tech sector.
Marc Andreessen, a leading US venture capitalist, compared the launch of DeepSeek’s R1 model to a pivotal moment in the US-USSR space race, calling it AI’s “Sputnik moment.” According to DeepSeek, its R1 model outperforms OpenAI’s o1-mini model across various benchmarks, while research by Artificial Analysis puts it above models developed by Google, Meta, and Anthropic in terms of overall quality.
DeepSeek was founded by the entrepreneur Liang Wenfeng, who runs a hedge fund, High-Flyer Capital, that uses AI to identify patterns in stock prices. Liang started buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.
The company is purely focused on research rather than commercial products – the DeepSeek assistant and underlying code can be downloaded for free, while DeepSeek’s models are also cheaper to operate than OpenAI’s o1. Liang said in an interview, “AI should be affordable and accessible to everyone,” and noted that the gap between US and Chinese AI was only one to two years.
The DeepSeek development raises doubts over the necessity for hefty investment in AI infrastructure such as chips and the market-leading role of US tech companies in AI, which in turn threatens to put American tech sector valuations under pressure. DeepSeek claims R1 cost $5.6 million to develop, compared with much higher estimates for western-developed models, although experts have cautioned that may be an underestimate.
Analysts at US investment banks have raised alarms over AI spending, questioning whether a $1 trillion investment in AI over the next few years will “ever pay off,” voicing concerns about the return on spending that may have been crystallized by DeepSeek.
The pan-European Stoxx 600 fell on Monday, and major European technology stocks were down. The Dutch chipmaker ASML slid by 7%, while Germany’s Siemens Energy, which provides hardware for AI infrastructure, was down nearly 20%, and France’s digital automation company Schneider Electric fell by 9.5%. It followed losses in Asia, where the Japanese chip companies Disco and Advantest – a supplier to Nvidia – suffered declines of 1.8% and 8.6% respectively.
Richard Hunter, the head of markets at the platform Interactive Investor, said, “It will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry, which has powered much of the gain seen in the main indices over the last couple of years. The larger question has suddenly become whether the hundreds of billions of dollar investment in AI needs re-evaluation.”
Dr. Andrew Duncan, the director of science & innovation at the UK’s Alan Turing Institute, said the DeepSeek development was “really exciting” because it “democratized access” to advanced AI models by being an open source developer, meaning it makes its models freely available – a path also followed by Mark Zuckerberg’s Meta with its Llama model.
“It demonstrates that you can do amazing things with relatively small models and resources. It shows that you can innovate without having the massive resources, say, of OpenAI,” he said.
