Chinese AI startup DeepSeek has shaken global tech markets with the release of its latest AI model, sparking concerns about America’s technological edge. The model is praised for being cost-effective while operating on less-advanced chips, calling into question the high valuations of companies like Nvidia, which has been central to the global AI boom. DeepSeek’s AI innovation highlights the potential to create powerful models without significant capital expenditures. “DeepSeek proves that effective AI can be developed for less,” said Vey-Sern Ling, managing director at Union Bancaire Privee. He warned that this could disrupt the AI supply chain, which heavily relies on massive spending by a few major players. Markets reacted swiftly, with Nasdaq 100 futures dropping nearly 2.5% and S&P 500 futures falling 1.4%, extending losses from the previous week. Nvidia shares slid over 5% in Asia, while other key players like Advantest Corp. and Mapletree Industrial Trust saw notable declines. Meanwhile, Chinese AI stocks surged, with Merit Interactive Co. and the Hang Seng Tech Index gaining amid positive sentiment. DeepSeek, founded by Liang Wenfeng, is positioned as a competitor to offerings from OpenAI and Meta. Its app, which transparently showcases its processes and reasoning, has quickly risen to the top of Apple’s App Store rankings. Investor Marc Andreessen called it “one of the most impressive breakthroughs” in the field. The model’s success challenges long-held assumptions about the AI race. It casts doubt on whether the substantial investment by Silicon Valley in advanced chips and infrastructure is the best path forward. Washington’s trade restrictions aimed at curbing China’s access to cutting-edge chips seemed ineffective, as DeepSeek utilized open-source technology to bypass these barriers. Chinese companies are leveraging DeepSeek’s technology, with Merit Interactive incorporating the model into its marketing. The innovation underscores that AI competition is intensifying globally , raising questions about the future dominance of U.S. tech leaders. According to Charu Chanana of Saxo Markets, while Nvidia and other leaders remain strong, the rise of companies like DeepSeek shows that the gap between China and the U.S. in AI innovation may close faster than anticipated. This week’s earnings from major tech players like Apple and Microsoft will serve as a critical test for the AI-driven rally in the sector. With the Nasdaq 100 trading at higher-than-average valuations, investor confidence may hinge on these results, as well as on how established players respond to the growing challenge from emerging competitors like DeepSeek.
