AI giveth and AI taketh away: Tech stocks routed on China’s big artificial intelligence breakthrough

January 27, 2025 at 10:33 AM EST

DeepSeek, China’s new AI platform, DeepSixed the stock market on Monday as investors fretted that America’s No. 1 rival has created an artificial intelligence breakthrough that can run on less sophisticated computer chips and is less costly to train than the current U.S. leaders in the field.

The tech-heavy Nasdaq shed more than 700 points, or 2.8% of its value, at its low in morning trading while the S&P 500 was down more than 1.6%. The widely followed Dow industrials fared better, losing only 0.3% of its value.

Seeking Alpha reported in its Monday Wall Street Breakfast newsletter that DeepSeek’s latest large language model platform, called R1, has outperformed models from established rivals like Microsoft-backed OpenAI, Meta and Anthropic, which have spent billions of dollars to scale up their LLMs.

“The new model is cost-effective and runs on reduced-capability chips,” Seeking Alpha quoted Saxo analysts as noting. “The development raises questions about the high valuations of leading AI companies like Nvidia and the investment case for the entire AI supply chain.”

The apparent progress for the Chinese comes even as the U.S. has sought to limit China’s access to the latest AI chips and technology.

“DeepSeek’s recent progress shows that the perceived lead the U.S. once had has narrowed significantly,” Alvin Wang Graylin, a tech expert serving as global VP at Taiwanese firm HTC, told Seeking Alpha.

As Axios reported in its morning newsletter, the revelations about DeepSeek have driven fears that the planned AI spending boom, with its hundreds of billions of dollars in capex on data centers, chips and power, might not really be necessary “if there’s a way to do it faster, cheaper and better with old hardware.”

Nvidia NVDA , the recent darling of the AI-fueled boom on Wall Street, fell more than 13% in Monday a.m. trading. Microsoft MSFT shed 3.3%, Alphabet GOOG was off 3% and Meta {symbol link=META] was down 0.75%. AMD AMD , Amazon AMZN and Tesla TSLA also were sinking. ETFs linked to chip makers and shares in chip equipment manufacturers were broadly 8% to 10% lower as well.

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AI giveth and AI taketh away: Tech stocks routed on China’s big artificial intelligence breakthrough

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