As concerns grew that the Chinese artificial intelligence company DeepSeekleap was outpacing the United States in AI research, tech stocks fell sharply on Monday morning.
At the opening bell, the Nasdaq Composite, which monitors the biggest tech companies in the nation, fell 3.4%. The S&P 500 plummeted over 2%, and the Dow dropped 180 points.
China’s DeepSeek, which claimed that it took only two months and less than $6 million to construct an open-source artificial intelligence model, was the catalyst for the sell-off. Concerns that China may surpass the United States in the scope and effectiveness of its AI efforts are fueled by the fact that those claims would be significantly less than the hundreds of billions of dollars that American tech companies like OpenAI, Microsoft, Meta, and others have invested in creating their own models.
The DeepSeek app has surpassed OpenAI’s ChatGPT to become the most popular free app in the Apple App Store.
Chipmaker Nvidia was one of the largest losers in the stock market meltdown, with its shares falling 13%. With shares rising more than 200% over the last two years, Nvidia has been one of the better performers lately and is now among the biggest corporations in the world.Nvidia would lose almost $460 billion in market value as a result of its decline. According to Bloomberg, the largest market value decline in the history of the US stock market would occur if its shares closed at these levels.
Significant losses were also incurred by other semiconductor businesses. ASML dropped 9%, while Micron Technology and Arm Holdings sank 7%.
Mega-cap tech companies also suffered; Alphabet, the parent company of Google, and Microsoft both saw a 4% decline. The company Meta Platforms, which is creating its own open-source AI model, had an almost 2% decline.
Despite export restrictions on the selling of sophisticated semiconductors to China, concerns have been raised regarding DeepSeek’s purported advancements.
According to Microsoft CEO Satya Nadella, who spoke at the World Economic Forum last week, DeepSeek’s advancements seem “super impressive… and super-compute efficient.” Nadella went on to say that we must take the events in China extremely seriously.
Microsoft stated that it would invest $35 billion by the end of 2024 to create “trusted and secure AI and cloud datacenter infrastructure.”
Constellation Energy fell 16% after signing an agreement with Microsoft to rebuild the nuclear facility at Three Mile Island to power AI computers. The stock of other electricity providers that are thought to benefit from AI, such Vistra Energy and NRG Energy, also fell precipitously. Siemens Energy, a manufacturer of equipment for utilities, had a 20% decline. Another manufacturer of power equipment, GE Vernova, saw a decline of over 23%.
The announcements made by DeepSeek have not convinced everyone. In a letter to clients on Monday, Bernstein analyst Stacy Rasgon stated, “We believe that…DeepSeek did not ‘build OpenAI for $5M’.” “The models look fantastic but we don’t think they are miracles.”
According to Giuseppe Sette, head of the AI market research firm Reflexivity, DeepSeek’s underlying technology is “extremely bullish in the long-term” because it may serve as a model for future AI companies.
DeepSeek’s ability to achieve more with less has caused it to take the market by storm. To put it simply, they save money and processing resources by only activating the most pertinent parts of their model for every query. This demonstrates that in the next years, there will be more surprises with AI,” Sette noted in a message on Monday.