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DeepSeek, a Chinese artificial intelligence (AI) company, sent stocks plummeting on Monday after claiming it has created large language models that rival the likes of OpenAI’s ChatGPT. The company’s iOS app has climbed to the top of Apple’s App Store ranking list, deposing ChatGPT and sending tech stocks into a global sell-off worth hundreds of billions of dollars in market cap.
The news comes as AI companies have invested billions in furthering their AI capabilities in an effort to keep up with the generative AI race, which Bloomberg Professional Services predicts will be a $1.3 trillion market by 2032.
Here’s what you need to know.
What is DeepSeek?
DeepSeek is a Chinese-based company founded in 2023 by Liang Wenfeng and a reported offshoot of High Flyer, a hedge fund focused on AI that was co-founded by Wenfeng.
On Jan. 20, the company released an open-source model. DeepSeek’s R1, according to a paper the company wrote, beats other reasoning models like OpenAI’s o1 on various math and reasoning criteria.
Furthermore, despite the sophistication of R1, DeepSeek claims to have built the model in only two months, and at a cost of just under $6 million — much faster and cheaper than similar AI models available to the public.
Why are tech stocks cratering?
Stocks fell broadly on Monday, with the Nasdaq Composite leading the decline with a 3.7 percent drop as of 3 p.m. ET. The S&P 500 was down nearly 2 percent.
The sell-off is indicative of investors’ fears that U.S. tech titans won’t be able to keep up with the competition. In other words, the market is reckoning with the fact that there are companies developing this technology faster, cheaper and with less specialized computer chips compared to what some of the biggest AI companies in the U.S. currently rely on.
For perspective, OpenAI — the company behind ChatGPT, the AI app that effectively kickstarted the AI race — invested years and more than $100 million in training ChatGPT.
Nvidia (NVDA), a major player in developing the hardware that makes AI technologies possible, saw its stock plummet more than 17 percent on Monday. The company designs high-performance graphics processing units (GPUs) that power complex AI and machine learning algorithms — the “magic” that runs AI functions, such as chatbots that generate human-like responses. The chip specialist’s shares saw triple-digit gains in 2023 and 2024, driven by soaring revenue and investors’ enthusiasm for AI stocks.
If DeepSeek can match — or even exceed — the capabilities of models like ChatGPT’s o1, it could force Nvidia (and tech companies like it) to either innovate faster or risk losing overall market share and relevance.
“While it may be too soon to know what the long-term ramifications are of DeepSeek, in the short-term markets have reacted quickly,” says Larry Tentarelli, technical strategist and founder, Blue Chip Daily Trend Report. “The markets are clearly sorting through where they think the winners and losers will be from the DeepSeek news.”
Bottom line
As the AI race heats up, companies are spending billions of dollars to keep up. Now, a new competitor has entered the arena, and it claims to have reached a level of AI complexity that American companies took months — in some cases, years — to achieve.
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