In recent years, the artificial intelligence industry has experienced significant growth, driven by technological advancements, the popularity of chatbots like ChatGPT and Gemini, and substantial global investments. However, the emergence of China’s DeepSeek has disrupted the global tech landscape. The company’s affordable, high-performance AI models have challenged established industry leaders, leading to an extraordinary sell-off in technology stocks and erasing billions in market capitalization.
DeepSeek, a two-year-old startup based in Hangzhou, recently unveiled its DeepSeek-V3 and DeepSeek-R1 models. According to the company, these AI platforms match the capabilities of leading Western counterparts, such as OpenAI’s ChatGPT, but operate at a significantly lower cost. Notably, DeepSeek’s AI models were reportedly developed using Nvidia’s less powerful H800 chips, with development costs totaling under $6 million—substantially less than typical competitor expenditures. This suggests that high-speed, efficient performance can be achieved at a fraction of the usual cost.
Introduced just a week ago, the DeepSeek-R1 model is claimed to be 20 to 50 times more cost-effective than similar products from industry giants. Independent third-party assessments have confirmed that DeepSeek’s models excel in several key areas. Furthermore, by making these models open-source, developers worldwide can access and implement these tools without significant financial investment.
While DeepSeek has benefited from these developments, other technology companies have suffered. Nvidia, a leader in AI hardware, experienced a nearly 17% drop in its stock price, resulting in a $593 billion loss in market capitalization. This represents the largest single-day loss in Wall Street history, surpassing the previous record of $279 billion set in September. Morgan Stanley commented on the situation, stating, “DeepSeek demonstrates an alternative path to efficient model training than the current arms race among hyperscalers by significantly increasing data quality and improving model architecture. DeepSeek now offers the lowest cost of LLM manufacturing, enabling frontier AI performance at a fraction of the cost with 9-13x lower price on output tokens compared to GPT-4o and Claude 3.5.”
Other semiconductor companies were similarly impacted. Broadcom’s shares declined by 17.4%, and Marvell Technology saw a 19.1% decrease. The Philadelphia Semiconductor Index, a key industry benchmark, fell by 9.2%, marking its steepest decline since the onset of the pandemic in 2020. Analysts attribute this widespread downturn to concerns that the demand for high-performance AI chips may significantly decrease due to the emergence of more efficient alternatives like DeepSeek’s models.
The Nasdaq Composite Index, which includes many tech and AI-focused companies, dropped by 3.1%, marking one of its most significant single-day declines in recent years. At its lowest point during the trading session, the index had lost more than $1 trillion in valuation. Major technology companies such as Microsoft and Alphabet, which have heavily invested in proprietary AI technologies, also faced notable declines. Microsoft, a key supporter of OpenAI, saw its shares decrease by 2.1%, while Alphabet, Google’s parent company, experienced a 4.2% drop. International markets reflected this downturn as well. Japan’s SoftBank Group closed 8.3% lower, and European semiconductor firms like ASML reported losses exceeding 7%.
