US Tech Stocks Tumble as Chinese AI Startup DeepSeek Shakes the Industry

US stock markets plummeted on Monday, driven by concerns over the rapid rise of a Chinese AI startup, DeepSeek. The company’s advancements in artificial intelligence have spooked investors, with the most notable casualty being chipmaker Nvidia, which saw a historic loss of nearly $600 billion in market value, the largest single-day drop in US stock market history.

DeepSeek, a one-year-old startup based in Hangzhou, China, revealed its ChatGPT-like AI model, R1, which has sent shockwaves through the technology sector. The company’s claims that it developed this cutting-edge model for just $5.6 million far less than the billions spent by American tech giants like OpenAI, Google, and Meta have raised alarms about the sustainability of current US investments in AI infrastructure.

The launch of DeepSeek’s AI assistant, R1, has been nothing short of meteoric, with the app quickly rising to the top of Apple’s iPhone App Store. DeepSeek has also captured the tech world’s attention with its impressive “reasoning” capabilities, including advanced problem-solving skills that rival those of AI models developed by US companies. Analysts, investors, and industry leaders are now questioning whether the US tech industry, long considered the global leader in AI development, is losing its competitive edge.

Venture capitalist Marc Andreessen described the situation as “AI’s Sputnik moment,” drawing a parallel to the 1957 launch of the Soviet satellite Sputnik, which ignited the space race between the US and the USSR. DeepSeek’s emergence is being viewed as a challenge to America’s dominance in AI, with critics raising concerns that China may soon outpace the US in the scale and efficiency of its AI investments.

In response to the rapidly shifting landscape, Nvidia’s stock dropped by 17%, marking a staggering $588.8 billion loss in market value. Other semiconductor companies, including Micron Technology and Arm Holdings, also saw significant declines, while major tech firms such as Microsoft, Alphabet, and Meta also faced sharp losses.

DeepSeek’s ability to create a sophisticated AI model on such a small budget has raised eyebrows, particularly because it was developed using Nvidia’s less powerful H800 chips, which are not subject to the US’s export restrictions on high-performance AI hardware. This revelation has sparked a debate within the US over how best to compete with China in the rapidly evolving AI race, with some experts arguing that overregulation of AI technology may only play into China’s hands.

Despite the alarm raised by DeepSeek’s rapid advancement, some analysts remain skeptical about the true capabilities of the company’s models. Stacy Rasgon, a semiconductor industry analyst, called the market reaction “overblown,” noting that the technology behind DeepSeek’s models is not revolutionary, but rather part of a broader trend in AI research.

Nonetheless, the timing of DeepSeek’s emergence has many questioning whether the US is truly positioned to retain its AI leadership. The company’s success has prompted renewed fears that American investments in AI infrastructure costing billions of dollars may not be sustainable in the long term if China continues to innovate at a fraction of the cost.

Tech industry veterans are still processing the implications of DeepSeek’s breakthrough. Some have suggested that the startup could serve as a model for other AI firms looking to optimize their spending, while others worry that the US may need to reassess its current approach to AI development in order to remain competitive.