DeepSeek’s AI chatbot disrupts U.S. tech stocks

Tech stocks took a significant hit on Monday following news of major advancements that have raised concerns in the U.S. about competitive parity in the AI race. Nvidia, a major player in the tech sector, saw its market value plummet by nearly $600 billion, making it one of the steepest drops in U.S. stock market history. The Nasdaq Composite Index, which tracks key tech firms, fell more than 3%. After an initial drop, the Dow Jones Industrial Average recovered to close nearly 300 points higher, while the S&P 500 declined by almost 1.5%. The market sell-off was triggered by revelations of advancements by a Chinese artificial intelligence firm, an open-source AI model initially released in December. The company claimed its model was developed in just two months at a cost of less than $6 million, starkly contrasting with the massive investments made by U.S. tech giants like OpenAI, Microsoft, and Meta. These claims have fueled fears that China might be surpassing the U.S. in the efficiency and scale of AI development. The firm’s popularity surged as its application became the top free app on the Apple App Store, surpassing OpenAI’s ChatGPT. Nvidia, which has been a standout performer with its stock rising more than 200% over the past two years, saw its shares tumble by as much as 18%. Nvidia acknowledged this progress, stating, “This is an excellent AI advancement and an example of what is possible by leveraging widely available models and compute that is fully export control compliant. Other semiconductor companies also faced significant losses. Micron Technology and Arm Holdings both fell 10%, while ASML was down 6%. Leading tech firms, including Microsoft and Alphabet, Google’s parent company, saw their shares decrease by 2% and 4%, respectively.

DeepSeek impact on U.S. stocks

However, Meta Platforms, which is developing its own open-source AI model, ended the day up by 1.9%. The claimed advancements have come despite export controls restricting sales of advanced semiconductors to China. Microsoft CEO Satya Nadella, speaking at the World Economic Forum, remarked that the progress seemed “super impressive and super-compute efficient,” urging the U.S. to take these developments seriously. Rep. John Moolenaar, R-Mich., chair of the Select Committee on China, emphasized the need for the U.S. to implement stronger export controls to safeguard national security and curb China’s AI ambitions. Microsoft has announced plans for $35 billion in investments to build “trusted and secure AI and cloud datacenter infrastructure” by the end of 2024. These advancements have also impacted the energy sector. Constellation Energy, which signed a deal with Microsoft to restart the Three Mile Island nuclear plant to power AI servers, saw its shares decline by 20%. Other power companies viewed as beneficiaries of AI, such as Vistra Energy and NRG Energy, also dropped sharply. Both power equipment manufacturers, Siemens Energy and GE Vernova, saw even larger declines of 20% and 21%, respectively. Despite skepticism from some quarters, including Bernstein analyst Stacy Rasgon, who questioned the claims, the overall sentiment is that the advancements could herald a new era in AI development. Giuseppe Sette, president of AI market research firm Reflexivity, said, “The firm has taken the market by storm by doing more with less. This shows that the surprises will keep coming with AI in the next few years.” Steve Kopack and Brian Cheung contributed to this report.