A stunning breakthrough by a little-known Chinese AI startup, DeepSeek, sent shockwaves through US stock markets on Monday, causing significant losses, particularly in the tech sector. 

The catalyst for this market turmoil is DeepSeek’s newly unveiled AI model, R1, a ChatGPT competitor.  DeepSeek claims to have achieved comparable performance to leading US models at a fraction of the cost – a mere $5.6 million in computing power compared to the hundreds of millions or billions spent by US tech giants like OpenAI, Google, and Meta.  This revelation has cast doubt on the massive investments US companies are pouring into AI development.

The impact on individual stocks was dramatic.  Nvidia, the leading AI chipmaker, suffered a staggering $588.8 billion loss in market capitalization – the largest single-day loss in stock market history, exceeding even Meta’s previous record.  Other tech giants like Meta and Alphabet also experienced substantial declines.  The fall extended to Nvidia’s competitors and companies involved in energy and data center infrastructure, highlighting the ripple effect of DeepSeek’s announcement.

The low cost of DeepSeek’s model is particularly striking given the US government’s efforts to restrict the export of high-performance AI chips to China.  This suggests DeepSeek may have achieved its results using less powerful chips, raising questions about the perceived US technological advantage.

While some analysts caution against overreacting to a single development, the market’s response underscores concerns about the competitiveness of the US AI sector.  The event has triggered a reassessment of investment strategies, with some investors shifting away from US tech companies and exploring opportunities in the undervalued Chinese AI market.  The coming week’s earnings reports from major tech companies will further test market sentiment and provide a clearer picture of the long-term impact of DeepSeek’s breakthrough. 

DeepSeek’s breakthrough comes soon after newly-inaugurated US President Donald Trump announced that a group of companies, including ChatGPT creator OpenAI, was creating a project called Stargate to keep the future of AI in America. The project’s estimated cost is $500 billion.