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Global tech shares fall as China AI chatbot DeepSeek spooks investors ‘Sputnik moment’: $1tn wiped off US stocks after Chinese firm unveils AI chatbot
(about 4 hours later)
Chinese startup’s $6m product raises doubts about sustainability of western artificial intelligence boom Emergence of DeepSeek raises doubts about sustainability of western artificial intelligence boom
Investors punished global tech stocks on Monday after the emergence of a Chinese chatbot competitor to OpenAI’s ChatGPT, DeepSeek, raised doubts about the sustainability of the US artificial intelligence boom. The race for domination in artificial intelligence was blown wide open on Monday after the launch of a Chinese chatbot wiped $1tn from the leading US tech index, with one investor calling it a “Sputnik moment” for the world’s AI superpowers.
The tech-heavy Nasdaq index in New York opened lower after investors digested the implications of the latest AI model developed by the startup DeepSeek. Investors punished global tech stocks on Monday after the emergence of DeepSeek, a competitor to OpenAI and its ChatGPT tool, shook faith in the US artificial intelligence boom by appearing to deliver the same performance with fewer resources.
Nvidia, the most valuable listed company in the US and a leading maker of the computer chips that power AI models, lost more than $400bn (£321bn) in stock market value in early trading as its shares declined 13.6%, while Microsoft shed $130bn and Google’s parent, Alphabet, declined by $80bn. The tech-heavy Nasdaq composite index fell just over 3% in afternoon trading in New York, representing a loss of approximately $1tn from its closing value of $32.5tn last week, as investors digested the implications of the latest AI model developed by DeepSeek.
Nvidia’s fall – which wiped about $465bn off its value, was the biggest in US stock market history, according to Bloomberg. Nvidia, a leading maker of the computer chips that power AI models, was overtaken by Apple as the most valuable listed company in the US after its shares fell 17%, wiping nearly $600bn off its market value. Google’s parent company lost $100bn and Microsoft $7bn.
The DeepSeek AI assistant topped the Apple app store in the US and UK over the weekend, above OpenAI’s ChatGPT. Nvidia’s fall was the biggest in US stock market history.
Shares in other AI-related companies based in the US, such as Tesla, Meta and Amazon, all fell when US markets opened. The DeepSeek AI assistant also topped the Apple app store in the US and UK over the weekend, above OpenAI’s ChatGPT.
DeepSeek claims to have used fewer chips than its rivals to develop its models, making them cheaper to produce and raising questions over a multibillion-dollar AI spending spree by US companies that has boosted markets in recent years.DeepSeek claims to have used fewer chips than its rivals to develop its models, making them cheaper to produce and raising questions over a multibillion-dollar AI spending spree by US companies that has boosted markets in recent years.
The company developed bespoke algorithms to build its models using reduced-capability H800 chips produced by Nvidia, according to a research paper published in December.The company developed bespoke algorithms to build its models using reduced-capability H800 chips produced by Nvidia, according to a research paper published in December.
Nvidia’s most advanced chips, H100s, have been banned from export to China since September 2022 by US sanctions. Nvidia then developed the less powerful H800 chips for the Chinese market, although they were also banned from export to China last October.Nvidia’s most advanced chips, H100s, have been banned from export to China since September 2022 by US sanctions. Nvidia then developed the less powerful H800 chips for the Chinese market, although they were also banned from export to China last October.
DeepSeek’s success at building an advanced AI model without access to the most cutting-edge US technology has raised concerns about the efficacy of Washington’s attempts to stymie China’s hi-tech sector.DeepSeek’s success at building an advanced AI model without access to the most cutting-edge US technology has raised concerns about the efficacy of Washington’s attempts to stymie China’s hi-tech sector.
Marc Andreessen, a leading US venture capitalist, compared the launch of DeepSeek’s R1 model last Monday to a pivotal moment in the US-USSR space race, posting on X that it was AI’s “Sputnik moment”, when the Soviet Union astounded its cold war rival by launching a satellite into orbit. Marc Andreessen, a leading US venture capitalist, compared the launch of DeepSeek’s R1 model last Monday to a pivotal moment in the US-USSR space race, posting on X that it was AI’s “Sputnik moment” – referring to when the Soviet Union astounded its cold war rival by launching a satellite into orbit.
According to DeepSeek, its R1 model outperforms OpenAI’s o1-mini model across “various benchmarks”, while research by Artificial Analysis puts it above models developed by Google, Meta and Anthropic in terms of overall quality.According to DeepSeek, its R1 model outperforms OpenAI’s o1-mini model across “various benchmarks”, while research by Artificial Analysis puts it above models developed by Google, Meta and Anthropic in terms of overall quality.
The company was founded by the entrepreneur Liang Wenfeng, who runs a hedge fund, High-Flyer Capital, that uses AI to identify patterns in stock prices. Liang reportedly started buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.The company was founded by the entrepreneur Liang Wenfeng, who runs a hedge fund, High-Flyer Capital, that uses AI to identify patterns in stock prices. Liang reportedly started buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.
The company is purely focused on research rather than commercial products – the DeepSeek assistant and underlying code can be downloaded for free, while DeepSeek’s models are also cheaper to operate than OpenAI’s o1. In an interview with Chinese media, Liang said “AI should be affordable and accessible to everyone.” Liang also said that the gap between US and Chinese AI was only one to two years. The company is purely focused on research rather than commercial products – the DeepSeek assistant and underlying code can be downloaded for free, while DeepSeek’s models are also cheaper to operate than OpenAI’s o1.
In an interview with Chinese media, Liang said “AI should be affordable and accessible to everyone”. Liang also said that the gap between US and Chinese AI was only one to two years.
The DeepSeek development raises doubts over the necessity for hefty investment in AI infrastructure such as chips and the market-leading role of US tech companies in AI, which in turn threatens to put American tech sector valuations under pressure.
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The DeepSeek development raises doubts over the necessity for hefty investment in AI infrastructure such as chips and the market-leading role of US tech companies in AI, which in turn threatens to put American tech sector valuations under pressure. DeepSeek claims R1 cost $5.6m to develop, compared with much higher estimates for western-developed models, although experts have cautioned that may be an underestimate. Last year Dario Amodei, the co-founder of leading AI firm Anthropic, put the current cost of training advanced models at between $100m and $1bn.
DeepSeek claims R1 cost $5.6m to develop, compared with much higher estimates for western-developed models. Last year Dario Amodei, the co-founder of leading AI firm Anthropic, put the current cost of training advanced models at between $100m and $1bn. Analysts at US investment bank Goldman Sachs raised the alarm over AI spending last year by publishing a note in June with the title “Gen AI: too much spend, too little benefit?”
The pan-European Stoxx 600 fell on Monday, and technology stocks were down by 4.5%. The Dutch chipmaker ASML slid by 8.2%, while Germany’s Siemens Energy, which provides hardware for AI infrastructure, was down nearly 20%, and France’s digital automation company Schneider Electric fell by 9%. It asked if a $1tn investment in AI over the next few years will “ever pay off”, voicing concerns about a return on spending that have been crystalised by DeepSeek.
It followed losses in Asia, where the Japanese chip companies Disco and Advantest – a supplier to Nvidia – suffered declines of 1.8% and 8.6% respectively. In the US, Nasdaq 100 futures were down 2.6%, and S&P 500 futures slipped 1.4%. The pan-European Stoxx 600 fell on Monday, and major European technology stocks were down. The Dutch chipmaker ASML slid by 7%, while Germany’s Siemens Energy, which provides hardware for AI infrastructure, was down nearly 20%, and France’s digital automation company Schneider Electric fell by 9.5%.
It followed losses in Asia, where the Japanese chip companies Disco and Advantest – a supplier to Nvidia – suffered declines of 1.8% and 8.6% respectively.
Richard Hunter, the head of markets at the platform Interactive Investor, said: “It will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry, which has powered much of the gain seen in the main indices over the last couple of years.Richard Hunter, the head of markets at the platform Interactive Investor, said: “It will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry, which has powered much of the gain seen in the main indices over the last couple of years.
“The larger question has suddenly become whether the hundreds of billions of dollar investment in AI needs re-evaluation.”“The larger question has suddenly become whether the hundreds of billions of dollar investment in AI needs re-evaluation.”
Andrew Duncan, the director of foundational AI at the UK’s Alan Turing Institute, said the DeepSeek development was “really exciting”. Andrew Duncan, the director of foundational AI at the UK’s Alan Turing Institute, said the DeepSeek development was “really exciting” because it “democratised access” to advanced AI models by being an open source developer, meaning it makes its models freely available – a path also followed by Mark Zuckerberg’s Meta with its Llama model.
He added: “It demonstrates that you can do amazing things with relatively small models and resources. It shows that you can innovate without having the massive resources, say, of OpenAI.” “Academia and the private sector will be able to play around and explore with it and use it as a launching,” he said.
Duncan added: “It demonstrates that you can do amazing things with relatively small models and resources. It shows that you can innovate without having the massive resources, say, of OpenAI.”