DeepSeek’s AI Breakthrough Triggers Global Tech Sell-Off, Nvidia Sees $593 Billion Loss

January 28, 2025 – A major shift in the artificial intelligence (AI) landscape has sparked widespread panic in global markets, causing a dramatic sell-off in technology stocks. Nvidia, a key player in AI chipmaking, was hit hardest, losing a staggering $593 billion in market value on Monday alone. This sharp decline follows the rise of DeepSeek, a Chinese AI startup that has introduced a low-cost AI assistant, posing a direct challenge to the dominance of established players like Nvidia and OpenAI.

Last week, DeepSeek launched its AI assistant, which the company claims uses far less data and comes at a fraction of the cost compared to competing models. The breakthrough immediately captured attention, with DeepSeek’s app surpassing ChatGPT in downloads from Apple’s App Store by Monday. The news sent shockwaves through the technology sector, triggering a 3.1% drop in the Nasdaq, with Nvidia’s shares plunging nearly 17%, marking the largest one-day loss in its history. According to LSEG data, the market capitalization loss for Nvidia was more than double its previous record, set just months ago in September 2024.

The effects of DeepSeek’s launch rippled through the tech sector. Chipmaker Broadcom saw its shares fall 17.4%, while other major players, including Microsoft, which backs ChatGPT, and Alphabet, the parent company of Google, saw declines of 2.1% and 4.2%, respectively. The Philadelphia semiconductor index, which tracks the performance of semiconductor stocks, fell 9.2%, its steepest decline since March 2020.

The turmoil started in Asia, where SoftBank Group’s stock plummeted 8.3%, and spread to Europe, with ASML down 7%. The tech sell-off prompted a flight to safer assets, with investors pouring into government bonds and currencies such as the Japanese yen and Swiss franc, which strengthened against the US dollar. Meanwhile, the benchmark 10-year US Treasury yield dropped to 4.53%.

Analysts are divided on what DeepSeek’s rise means for the future of AI and the companies that have benefitted from its surge. Brian Jacobsen, chief economist at Annex Wealth Management, suggested that if DeepSeek’s AI model proves to be a “better mousetrap,” it could disrupt the entire AI market. He noted that a cheaper alternative to current AI models could reduce demand for expensive chips and large-scale data centers, which have been essential to the rapid growth of the sector.

Adrian Cox, an analyst at Deutsche Bank, added that while DeepSeek’s success could challenge the “bigger is better” approach, it could ultimately lead to an explosion of AI usage, as the lower cost could make AI more accessible across different devices and applications. Despite these concerns, Cox believes that the new, cheaper AI models could drive growth in the sector by expanding AI’s reach.

The deepening skepticism surrounding AI’s massive infrastructure needs echoes past doubts when Chinese companies initially lagged behind the US in AI capabilities. However, DeepSeek has managed to impress even Silicon Valley experts, with venture capitalist Marc Andreessen calling DeepSeek’s R1 model a “Sputnik moment”—a reference to the Soviet Union’s 1957 launch of its first satellite, which ignited the space race.

The technology industry has been abuzz over the potential implications of DeepSeek’s models, particularly its DeepSeek-V3 and DeepSeek-R1, which cost substantially less to develop and run than competitors’ offerings. DeepSeek claims that its R1 model is 20 to 50 times cheaper to use than OpenAI’s GPT-3, depending on the task. While the model is primarily designed for mobile phones and PCs, it poses a direct challenge to companies like ChatGPT, Meta, and Alphabet, which are investing heavily in AI for large-scale data centers.

Despite the panic on Monday, some market observers are taking a more measured approach. Daniel Morgan, senior portfolio manager at Synovus Trust Company, argued that the sell-off is an overreaction, noting that DeepSeek’s model targets mobile devices rather than data centers, where the real money in AI lies. Morgan sees the tech sell-off as an opportunity to buy high-quality stocks at a discount.

Still, Nvidia’s stock closed down 11.8% year-to-date, and it is now facing significant headwinds. The company had seen remarkable growth in 2023 and 2024, with its stock price surging over 170% last year as investors saw Nvidia as the best way to bet on the growth of AI. But now, as the landscape shifts, many are questioning whether Nvidia’s dominant position in the market will remain unchallenged.

The ripple effects of DeepSeek’s entry into the market were also felt in other sectors. Vertiv Holdings, which builds data center infrastructure, saw its stock plummet 29.9%. Similarly, power utilities that had previously rallied on the expectation of growing demand from AI-driven data centers, such as Vistra and Constellation Energy, experienced steep losses.

As the dust settles, it remains to be seen whether DeepSeek’s low-cost AI model is a true game-changer or a temporary blip in the rapidly evolving AI space. For now, the market is bracing for further volatility as investors reassess the future of AI and its impact on the technology sector.