Chinese DeepSeek chatbot wipes off $1tn from US stocks market

[Admin]

On Monday, a new AI chatbot from China made waves, shaking up the tech world and causing a huge dip in the stock market. In fact, the launch of DeepSeek's AI model wiped out $1 trillion from the value of US tech stocks, a move that many are calling a "Sputnik moment" in the race for AI dominance. This term refers to the 1957 launch of the Soviet Union's Sputnik satellite, which took the world by surprise and changed the balance of power in space exploration.



So, what happened? DeepSeek, a new player in AI, introduced a chatbot that's getting a lot of attention. The chatbot is a direct competitor to OpenAI's ChatGPT and it seems to be able to do the same things with fewer resources. That's causing some investors to rethink the US's position in the AI space.

When the US stock markets opened on Monday, the Nasdaq Composite, which tracks many tech stocks, dropped by 3.1%. At one point, it had lost more than $1 trillion in value. Big names like Nvidia, Google's parent company Alphabet, and Microsoft saw their stock prices fall significantly. Nvidia, in particular, took a huge hit—its stock dropped 17%, losing about $600 billion in market value. This was the biggest fall for Nvidia in US stock market history. Even Apple, a tech giant, overtook Nvidia in market value after this.

What makes DeepSeek's AI chatbot so significant? Well, it's making waves because it doesn't rely on the cutting-edge chips that companies like Nvidia and OpenAI use. Instead, it uses less powerful chips, which makes its models cheaper to produce. This raises questions about whether the massive investments US companies are pouring into AI, particularly into high-tech chips, are really necessary.

DeepSeek's AI assistant also outperformed ChatGPT on app stores in both the US and the UK. It even became the top app in both countries over the weekend, surpassing OpenAI's ChatGPT. The company, founded by entrepreneur Liang Wenfeng in China, claims that their AI model is just as good as others but at a fraction of the cost.

[Admin]

The technology behind DeepSeek's chatbot is interesting. The company developed its AI model using chips that are less powerful than the ones most top companies use. These chips are called H800 chips, which are not as advanced as Nvidia's H100 chips. In fact, the US has banned the export of Nvidia's most advanced chips to China. But even with these less advanced chips, DeepSeek managed to create a highly effective AI assistant.

DeepSeek's ability to do this raises some uncomfortable questions for the US. It challenges the belief that American tech companies need the most advanced chips and massive amounts of funding to stay ahead in AI development. It also shows that China's AI companies might not be as far behind as many thought. According to DeepSeek, their R1 model outperforms OpenAI's smaller models, and some analysts believe it's better than models developed by other US tech giants like Google and Meta.

This has major implications for the global AI race. Marc Andreessen, a well-known venture capitalist in the US, compared DeepSeek's launch to the Soviet Union's Sputnik moment. It's a reminder that the AI race isn't just happening in the US. China is making huge strides, and its AI companies are becoming serious competitors.

One of the reasons DeepSeek's AI model is cheaper is that it uses its own unique algorithms and doesn't rely on expensive resources. In fact, DeepSeek says that it only cost $5.6 million to develop its R1 model, while experts estimate that developing a similar AI model in the US would cost anywhere between $100 million to $1 billion. This price difference is part of what's raising concerns about the value of the heavy investment in AI infrastructure happening in the US.

In the face of this competition, US investors are starting to question whether all the money being poured into AI is really worth it. A report by Goldman Sachs last year raised the same concern, asking if the $1 trillion that's expected to be spent on AI in the next few years will actually pay off.

[Admin]

The launch of DeepSeek's AI chatbot also highlights the growing role of open-source technology. Unlike other companies that tightly control their AI models, DeepSeek has made its models freely available. This is a significant shift. It allows more people, from academics to smaller companies, to experiment with and use AI without having to invest heavily in expensive technology.

For many in the industry, this is an exciting development. Dr. Andrew Duncan, the director of science and innovation at the UK's Alan Turing Institute, said that DeepSeek's approach makes advanced AI more accessible to everyone. By making their models open-source, DeepSeek is helping to democratize access to AI. And with its lower cost, it shows that you can do amazing things with smaller, less resource-intensive models.

DeepSeek's rise also has implications for other tech markets. In Japan, for example, stocks tied to AI companies fell sharply after the news of DeepSeek's launch. Big companies like Advantest and SoftBank saw their stock prices drop as investors worried about the competition. Meanwhile, European markets also felt the effects. The Dutch chipmaker ASML saw its stock slide by 7%, and Germany's Siemens Energy, which provides hardware for AI, dropped nearly 20%.

As this competition heats up, the question now is whether US companies need to reassess their massive investments in AI. If a smaller company like DeepSeek can compete with the big players using fewer resources, it could mean that some of the spending happening in the US may be overblown. Investors will be keeping a close eye on the situation as they try to figure out what's next for AI.

In the end, DeepSeek's success has shown that the future of AI might not be as straightforward as many thought. With cheaper models, new competitors, and the rise of open-source technology, the landscape is shifting quickly. It's a reminder that the race for AI is global, and the US is no longer the only major player.