US stocks dropped sharply Monday — and chipmaker Nvidia lost nearly $600 billion in market value — after a surprise advancement from a Chinese artificial intelligence company, DeepSeek, threatened the aura of invincibility surrounding America’s technology industry.
DeepSeek, a one-year-old startup, revealed a stunning capability last week: It presented a ChatGPT-like AI model called R1, which has all the familiar abilities, operating at a fraction of the cost of OpenAI’s, Google’s or Meta’s popular AI models. The company said it had spent just $5.6 million on computing power for its base model, compared with the hundreds of millions or billions of dollars US companies spend on their AI technologies.
That sent shockwaves through markets, in particular the tech sector, on Monday.
The tech-heavy Nasdaq plunged by 3.1% and the broader S&P 500 fell 1.5%. The Dow, boosted by health care and consumer companies that could be hurt by AI, was up 289 points, or about 0.7% higher. Stock market losses were far deeper at the beginning of the day.
Meta last week said it would spend upward of $65 billion this year on AI development. Sam Altman, CEO of OpenAI, last year said the AI industry would need trillions of dollars in investment to support the development of in-demand chips needed to power the electricity-hungry data centers that run the sector’s complex models.
Marc Andreessen, a supporter of President Donald Trump and one of the world’s leading tech investors, called DeepSeek “one of the most amazing and impressive breakthroughs I’ve ever seen,” in a post on X.The stunning achievement from a relatively unknown AI startup becomes even more shocking when considering that the United States for years has worked to restrict the supply of high-power AI chips to China, citing national security concerns. That means DeepSeek was able to achieve its low-cost model on under-powered AI chips. (CNN)