The race for dominance in artificial intelligence (AI) took a dramatic turn this week as the launch of a Chinese chatbot, DeepSeek, wiped $1 trillion off the leading US tech index. Investors reacted sharply to the emergence of this new competitor, which threatens to disrupt the AI boom led by US giants like OpenAI and its ChatGPT tool.
DeepSeek, which claims to deliver similar performance to its rivals at a fraction of the cost, has shaken confidence in the multibillion-dollar investments made by US tech companies. The tech-heavy Nasdaq Composite index fell 3.1%, with Nvidia, a key player in AI chip manufacturing, losing 17% of its value—the biggest single-day drop in US stock market history. Other major tech firms, including Google’s parent company Alphabet and Microsoft, also saw significant losses.
The launch of DeepSeek has been compared to the Soviet Union’s 1957 Sputnik satellite launch, which caught the US off-guard during the Cold War. Marc Andreessen, a prominent US venture capitalist, called it AI’s “Sputnik moment,” highlighting the potential shift in the global AI landscape. DeepSeek’s R1 model reportedly outperforms OpenAI’s o1-mini and rivals models from Google, Meta, and Anthropic in various benchmarks.
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The ripple effects of DeepSeek’s launch were felt worldwide. In Asia, Japanese tech firms like Advantest and SoftBank saw significant declines. In Europe, the pan-European Stoxx 600 index fell, with Dutch chipmaker ASML dropping 7% and Germany’s Siemens Energy plummeting nearly 20%. Investors are now questioning whether the massive investments in AI infrastructure by US companies will deliver the expected returns.
Founded by entrepreneur Liang Wenfeng, DeepSeek is based in Hangzhou, China. Liang, who also runs a hedge fund, High-Flyer Capital, reportedly began developing AI models as a hobby using Nvidia chips. DeepSeek’s focus on research rather than commercial products has allowed it to offer its AI assistant and underlying code for free, making advanced AI more accessible. Liang believes the gap between US and Chinese AI capabilities is only one to two years.
DeepSeek’s rise challenges the notion that AI development requires massive resources and cutting-edge technology. By democratizing access to advanced AI models, DeepSeek has opened new possibilities for innovation. However, it also threatens the market-leading position of US tech companies, potentially putting their valuations under pressure.
As the AI race intensifies, the global tech industry faces a pivotal moment. DeepSeek’s success underscores the need for re-evaluation of AI investments and strategies, as the balance of power in the tech world continues to shift.
