China’s DeepSeek AI App Sends U.S. Tech Stocks ReelingChina’s DeepSeek AI App Sends U.S. Tech Stocks Reeling

The sudden popularity of a Chinese artificial intelligence model called DeepSeek pummeled stocks Monday (January 27), with the tech-focused Nasdaq composite index down 2.7% in morning trading.

Several tech companies that have banked on a surge of AI interest sold off, with U.S. chipmaker Nvidia down more than 12% at the opening bell. Microsoft lost around 3.5%, Meta Platforms lost 1.6%, and Oracle dropped more than 7%.

Analysts said the sell-off underscores anxieties about whether the massive spending on artificial intelligence – and the specialized chips, data centers, and related power infrastructure – are justified. Nvidia has exploded in value in recent years because it dominates the market for the chips at the center of the global AI race. It’s now one of three companies with a market capitalization above $3 trillion.

But some analysts have raised questions about how soon those investments will translate into straightforward moneymaking use cases for U.S. companies. The emergence of a low-cost Chinese competitor adds to skepticism over those investments.

“Markets are sensitive to this situation, as heightened price competition raises doubts about the timing of when profits from multibillion-dollar investments will materialize,” Alex Kuptsikevich, chief market analyst at FxPro, said in an email Monday.

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The emergence of the model from China has escalated concerns about the U.S. adversary’s tech prowess amid a global race to develop advanced artificial intelligence. China’s advancements in the technology are viewed as a national security threat to the U.S., and the success of DeepSeek has only exacerbated those concerns.

DeepSeek is a China-based start-up that last week launched a free AI assistant that it says can operate at a lower cost than American AI models like ChatGPT. The company was founded in 2023 by Liang Wenfeng, co-founder of the hedge fund High-Flyer. By Monday, it had rocketed to the top of downloads in the Apple Store. It also reported outages and limited registrations due to “large-scale malicious attacks” amid the uptick in interest.

DeepSeek has shaken the market because it purports to need fewer and less advanced chips than other AI models, while still performing as well as U.S. rivals - challenging the premise that only big, well-capitalized companies can make breakthroughs in the sector. The Biden administration earlier this month introduced export controls intended to limit China’s access to powerful chips known as GPUs, which underpin advanced AI projects.

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President Donald Trump has said that the United States needs to remain competitive with China in developing artificial intelligence, and he appeared focused on the technology during his first week in office. He told reporters Saturday that he was considering using emergency powers to provide the “tremendous energy” that U.S. companies need to develop AI models.

We’re already leading,” Trump said on Air Force One. “Very shortly, we’re going to be leading by a lot.”

Longtime technology investor Marc Andreessen, a Trump ally, called DeepSeek’s AI model “one of the most amazing and impressive breakthroughs I’ve ever seen” and “a profound gift to the world” in a post on X.

Leading tech firms have spent billions building out artificial intelligence technology for sale to large businesses. Meta chief executive Mark Zuckerberg said in a Facebook post last week that his company plans to invest between $60 billion and $65 billion on AI and build a massive data center. OpenAI, Oracle and SoftBank recently announced a Trump-supported joint venture, called Stargate, that seeks to spend up to $500 billion building out data centers to support AI projects.

Monday’s sell-off also shaved 1.9% off the broader S&P 500 index before noon, while the Dow Jones Industrial Average inched 0.2% lower. The jitters extended to global markets, with Germany’s DAX off 0.6%, while Hong Kong’s Hang Seng Index rallied 0.6%. Bitcoin fell 2% overnight.

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Some analysts suggested Wall Street’s reaction may be a premature reflection of fear in the markets, noting that U.S. companies have dominated artificial intelligence innovation so far. WedBush senior analyst Dan Ives, who has been bullish on AI, called Monday’s rout a “golden buying opportunity” despite the agitation in U.S. markets.

Much of the business case for artificial intelligence rests on the corporate spending of Western companies, which are unlikely to trust a China-based AI company with their data. And U.S.-based companies are far ahead in terms of developing the necessary hardware infrastructure, Ives said.