Tech Stocks Tumble as China's DeepSeek Raises U.S. Concerns in AI Race
DeepSeek's Open-Source AI Model Sparks Fears of China's Rising Dominance in Artificial Intelligence
U.S. tech stocks faced a sharp downturn Monday, with Nvidia losing nearly $600 billion in market value, amid growing concerns that China’s AI company, DeepSeek, is catching up with and potentially surpassing American firms in the development of artificial intelligence.
The Nasdaq Composite, which tracks the largest tech companies in the U.S., fell more than 3%, while the S&P 500 dropped nearly 1.5%. The Dow, however, managed to finish the day up nearly 300 points after an earlier dip.
The sell-off was triggered by revelations about DeepSeek’s rapid advances in AI, particularly its open-source model, which was released in December. The company claimed that the model took only two months and less than $6 million to develop, a fraction of the resources invested by U.S. tech giants like OpenAI, Microsoft, and Meta, raising concerns that China may be gaining an edge in AI innovation.
DeepSeek’s AI application quickly became the top free app on the Apple App Store, pushing OpenAI’s ChatGPT to second place. The firm’s rapid rise and relatively low development costs have sparked alarm about the potential for China to outpace U.S. efforts in AI scale and efficiency.
Among the hardest-hit companies was chipmaker Nvidia, whose shares tumbled as much as 18%. Nvidia, a major beneficiary of the AI boom, had seen its stock soar by more than 200% over the past two years. The drop represents the largest market value loss in U.S. stock market history, according to Bloomberg.
In a statement, Nvidia acknowledged DeepSeek’s “impressive” AI advancements, noting that they were an example of what is possible using widely available models and compute power that comply with export controls.
Other semiconductor companies, such as Micron Technology and Arm Holdings, also saw their stocks fall by 10%, while ASML dropped by 6%. Major tech firms were not immune either, with Microsoft and Google’s parent company Alphabet seeing declines of 2% and 4%, respectively. Meta Platforms, which is developing its own open-source AI model, ended the day with a slight gain of 1.9% after an early drop.
Despite export controls on advanced semiconductor sales to China, concerns over DeepSeek’s breakthroughs continue to grow. Microsoft CEO Satya Nadella recently expressed admiration for DeepSeek’s progress, calling it “super impressive” and “super-compute efficient,” and urging the U.S. to take China's AI developments seriously.
Rep. John Moolenaar (R-Mich.), Chairman of the Select Committee on China, echoed these concerns, emphasizing the need for stronger export controls on critical AI technologies to protect U.S. national security and prevent China from leveraging AI to enhance its geopolitical power.
In the midst of the AI race, other companies tied to the industry also suffered. Constellation Energy saw a 20% drop in stock value after a deal with Microsoft to restart the Three Mile Island nuclear plant to power AI servers. Shares in other energy firms like Vistra Energy, NRG Energy, Siemens Energy, and GE Vernova also fell sharply.
Despite the concerns, not all analysts are convinced by DeepSeek’s claims. Bernstein analyst Stacy Rasgon wrote that while the models appear impressive, they are not “miracles” and questioned whether the company had truly built a model akin to OpenAI’s for just $5 million.
Giuseppe Sette, President of AI market research firm Reflexivity, noted that DeepSeek’s innovative approach of optimizing model use for each query could revolutionize the AI industry in the long term. He stated that the company’s success in achieving significant outcomes with fewer resources was a clear indication of the evolving AI landscape, with surprises likely to continue in the coming years.
As the race for AI dominance heats up, the future of U.S.-China competition in this field remains uncertain, with developments like DeepSeek’s challenging the status quo of global AI leadership.