New Chinese AI Startup DeepSeek Sends Global Tech Stocks Tumbling

What Happened?

As Saritha Rai and Newly Pernell of Bloomberg reported today:

‘DeepSeek, a Chinese AI startup that’s just over a year old, has stirred awe and consternation in Silicon Valley after demonstrating breakthrough artificial-intelligence models that offer comparable performance to the world’s best chatbots at seemingly a fraction of the cost. Global technology stocks tumbled in late January as hype around DeepSeek’s innovation snowballed and investors began to digest the implications for its US-based rivals and their hardware suppliers.’

Reuters also reported ‘Investors sold off a host of technology stocks from Tokyo to New York on Monday as they worried that the emergence of a low-cost Chinese artificial intelligence model would threaten the dominance of current AI leaders such as Nvidia.’

Why it Matters

The recent announcement of Project Stargate in the U.S. underscored the magnitude of the coming American investments in AI.

Major tech companies have pledged to invest $500 billion dollars in AI and supporting infrastructure over the next four years. The idea behind Stargate is to turn the United States into an AI superpower before China reaches that same milestone.

What makes DeepSeek potentially noteworthy for American investors and the global market is that the Chinese startup purports to offer the same quality as ChatGPT for less money and with far less data consumption.

If DeepSeek’s claims are true that it requires far less data and uses a much more efficient model, then potential users would not need to buy powerful AI accelerators such as those sold by Nvidia (NVDA). That would account the drop in tech stocks observed this week — including Nvida’s 17% fall on Monday.

According to Bloomberg:

‘DeepSeek was founded in 2023 by Liang Wenfeng, the chief of AI-driven quant hedge fund High-Flyer. The company develops AI models that are open-source, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.’

The large numbers of people downloading the app points to a belief among users that it could perform as advertised. But whether or not the initial surge of downloads is sustained will depend on how well the app actually functions in the long run once in the hands of a wide pool of users. 

How it Affects You

China and the United States are in a race to become the dominant AI superpower in the world. Currently those two nations are the leaders in AI.

Each believes that supremacy in AI will provide economic, military, and even social advantages for their respective populations.

If DeepSeek can do what its creators claim, that would indicate that China’s developers have managed to find ways around the U.S. ban on exporting high-end technologies like GPU semiconductors to China.