China’s DeepSeek Disrupts AI Market, Sparking Massive Tech Selloff
The global AI landscape was rocked this week as DeepSeek, a Chinese artificial intelligence startup, unveiled a highly efficient AI model that operates at a fraction of the cost of existing services. The revelation triggered a wave of investor anxiety, leading to a sharp selloff in major tech stocks, particularly those linked to AI infrastructure.
DeepSeek’s free AI assistant, launched last week, has garnered widespread attention for its ability to deliver strong AI performance while utilizing significantly less data and computing power. Even OpenAI CEO Sam Altman acknowledged its potential, calling it an “impressive model” and welcoming the competition.
Tech Stocks Take a Hit as AI Valuations Come Under Scrutiny
The impact of DeepSeek’s emergence was felt across global markets. Nvidia (NVDA.O), a key player in the AI chip industry, experienced a historic 17% drop on Monday, wiping out a staggering $593 billion in market value—the largest single-day loss for any company.
Other major tech firms also faced losses:
- Broadcom (AVGO.O) plummeted by 17.4%,
- Microsoft (MSFT.O), a key OpenAI investor, fell 2.1%,
- Alphabet (GOOGL.O), Google’s parent company, declined 4.2%,
- The Philadelphia Semiconductor Index recorded its worst drop since March 2020, tumbling 9.2%.
Asian markets weren’t spared either. In Japan, chip-testing equipment supplier Advantest (6857.T) dropped 10%, while Tokyo Electron (8035.T), another semiconductor leader, lost 5.3%. Tech investment giant SoftBank Group (9984.T) also sank 6%.
Investor Concerns: Are AI Stocks Overvalued?
DeepSeek’s breakthrough has sparked debates about whether AI valuations are sustainable. Over the past 18 months, heavy investments in AI infrastructure have fueled massive stock market gains. However, the rise of a cost-effective alternative like DeepSeek is now making investors question whether companies like Nvidia, Microsoft, and OpenAI can maintain their dominance.
David Bahnsen, Chief Investment Officer at The Bahnsen Group, noted,
“Monday’s selloff was particularly striking because many of these AI and tech firms are priced with little margin for error. The market’s over-reliance on AI hype has left portfolios highly concentrated in a few high-risk stocks.”
What Makes DeepSeek Different?
DeepSeek’s AI model was reportedly trained using Nvidia’s H800 chips, a lower-end alternative to the high-cost processors that power models like ChatGPT. According to DeepSeek’s researchers, training the AI cost less than $6 million—a stark contrast to the billions U.S. tech giants are pouring into AI development.
Charu Chanana, Chief Investment Strategist at Saxo, emphasized that DeepSeek’s innovation is a warning sign for established AI players.
“This proves that cutting-edge AI models can be developed with more cost-efficient hardware, challenging the massive spending by U.S. tech firms on AI infrastructure.”
What’s Next for AI Investors?
With a string of major tech earnings reports due this week, all eyes will be on how executives respond to the growing competition from China. Investors will be particularly keen to hear how companies plan to maintain their AI edge in a landscape where cost-efficient alternatives are emerging.
While DeepSeek’s full capabilities and long-term impact remain uncertain, one thing is clear—AI dominance is no longer guaranteed, and the market is paying attention.
