Another reason DeepSeek is catching investors off guard is because of the low development costs for its AI app, which Wedbush Securities analyst Dan Ives pegged at only $6 million. For comparison, according to Goldman Sachs, OpenAI, Google and other major U.S. companies are on track to invest roughly $1 trillion in AI over the coming years.
Shares in AI darlings like Nvidia, the high-flying producer of advanced chips engineered to help build AI, and Dutch chipmaker ASML, were also rattled Monday by the Chinese company's rollout of DeepSeek. The Tech is threatening to derail demand for Nvidia's chips, and investors are possibly overpaying for other tech stocks that have been fueled by the promise of AI, from Meta to Microsoft, experts said.
"DeepSeek has taken the market by storm by doing 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 new app is out just days after Mr. Trump announced a new $500 billion venture with ChatGPT maker OpenAI, Softbank and Oracle, dubbed Stargate, which he touted as ensuring "the future of technology" in the U.S.
AI-related stocks took a beating on Monday, with shares of Nvidia tumbling 17%, wiping out $600 billion of value, the largest one-day loss ever for a company, CNBC reports. ASML sank 6% while also dipping were Broadcom, another semiconductor stock that fell 17%.
Some energy-related stocks also plunged on Monday on investor worries that the new tech could require less energy to run, translating into lower demand from the tech sector. GE Vernova, which makes wind and gas turbines, plunged 21%, while electricity generator Vistra slumped 28%.
The tech-heavy Nasdaq index slumped 3%, or 612 points, while the S&P 500 declined 1.5%. The blue-chip Dow Jones Industrial Average added 0.7%.
Despite the sharp drop on the Nasdaq, 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 the COVID-19 pandemic hit the economy.
What is DeepSeek?
DeepSeek is a private Chinese company founded in July 2023 by Liang Wenfeng, a graduate of Zhejiang University, one of China's top universities, who 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 earlier focused on applying AI to investing. He had bought a "stockpile of Nvidia A100 chips," a type of tech that is now banned from export to China. Those chips became the basis of DeepSeek, according to MIT publication.
Ben Reitzes, technology research head at Melius, wrote to investors in a note that DeepSeek is a tool for AI in making legitimate breakthroughs, which include better learning and more efficient usage of memory. He, however expressed skepticism towards the "amount of chips used."
Is DeepSeek available in the United States?
The company's AI app is available in Apple's App store, as well as online at its website. The service is free and as of Monday morning was the top download on Apple's store, although 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.
On Jan. 20, the company let loose its latest AI model, which is forcing Wall Street to reappraise the AI sector.
"Last week DeepSeek launched a model that is on par with 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 does DeepSeek differ from other AI apps?
DeepSeek is an open-source large language model that relies on what is called "inference-time computing," according to Sette, who translated that into "they activate only the most relevant portions of their model for each query, and that saves money and computation power."
Some experts have 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 — and as open source, a profound gift to the world."
David Sacks, a venture capitalist named to Mr. Trump's advisory committees on AI and cryptocurrency, told social media followers Monday that the DeepSee app "shows the AI race will be very competitive."
But Ives said he sees little chance it will make up lost ground with corporate America.
"No U.S. Global 2000 is going to use a Chinese startup DeepSeek to launch their AI infrastructure and use cases," Ives wrote. "At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia."
What does DeepSeek mean for Nvidia and other tech companies?
Wall Street is attempting to size up the long-term effects of an AI tool out of China, at low cost and reportedly better than ChatGPT, which, according to Zino, the senior equity analyst at CFRA Research, poses a further question about Silicon Valley overspending on its advancement in the field of AI.
"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," said Jay Woods, chief global strategist at Freedom Capital Markets.
It is also unclear what kind 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, although he also gave the Chinese-owned TikTok a reprieve by ordering the Justice Department not to enforce a looming ban.
Meanwhile, major tech companies including Meta and Microsoft are scheduled to report earnings this week, where investors may hear more from the executives of those companies about their AI plans and what they think about DeepSeek.
Some Wall Street analysts believe that Monday's stock selloff was an overreaction, arguing that enormous demand for AI will continue lifting the sector's key players.
"It's one thing to train a [large language] model for less money, but accommodating the huge demand for the consumption of all this AI technology is still going to require massive amounts of infrastructure," Adam Crisafulli of VitalKnowledge said in a report.
What is Nvidia saying about DeepSeek?
In a statement to CBS News, Nvidia offered praise for DeepSeek.
"DeepSeek is a fantastic AI advancement and a great demonstration of test-time scaling," the firm said in an email. "DeepSeek's work demonstrates how new models can be developed using that approach, taking advantage of widely available models and fully export-control compliant compute."
But AI inference, or using AI models to make decisions or predictions, "requires significant numbers of NVIDIA GPUs and high-performance networking. We now have three scaling laws: pre-training and post-training, which continue, and new test-time scaling."
Comments