Chinese AI Model DeepSeek Sends US Equities Southbound

Chinese AI Model DeepSeek Sends US Equities Southbound

Chinese AI startup DeepSeek sent US equity markets spiralling south yesterday, with its emergence driving a US$1 trillion loss in tech stocks. DeepSeek also recently unseated OpenAI’s ChatGPT as the top free App in the Apple App Store.

The Nasdaq 100 ended Monday’s session down 3.0%, the S&P 500 lost 1.5%, while the Dow Jones Industrial Average gained 0.7% and is closing in on all-time highs of 45,073.

AI chip maker Nvidia (ticker: NVDA) fell around 16% by the close of trading yesterday, erasing nearly US$600 billion in value. Chartists also noted that the recent selloff breached the lower boundary of a double-top pattern on the daily timeframe – a structure designed to help identify reversal signals. The chart below demonstrates how further downside is expected for the NVDA Stock towards the pattern’s profit objective at US$104.78. Closely shadowing this area is another layer of support below US$100.00 at US$95.64.

Chart created using TradingView

Who Is DeepSeek? 

DeepSeek is a China-based AI startup headquartered in Hangzhou. It was set up in late 2023 by Liang Wenfeng  – co-founder of the High-Flyer hedge fund. The company has sent shockwaves across the world with its new AI model, DeepSeek R1, with US tech giants concerned about the possibility of losing their dominance. Developed in just two months, DeepSeek R1 is an open-source large language model, which rivals AI leaders such as OpenAI’s GPT-4, Meta’s Llama, and Google’s Gemini. 

The model was built at a fraction of the cost of its US rivals. DeepSeek reportedly spent just US$5.6 million to power its base AI model using Nvidia’s H800 chips, the China-export version of its H100 chips. 

On 27 January 2025, the free DeepSeek application surged to the top of the Apple Store and Google Play charts, with nearly 2 million downloads, surpassing ChatGPT. Tech investor Marc Andreessen described its release as ‘AI’s Sputnik moment’.

Does DeepSeek Change Things?

The sudden emergence of DeepSeek has challenged assumptions about US dominance in AI,  opening up the potential for new possibilities regarding what can be done with less computer power and capital. 

DeepSeek's low-cost AI model has raised questions as to how such an advanced system can be developed at a fraction of the cost and using less powerful chips compared to American AI models of similar capabilities. This could signal the first step toward a domino effect in the industry's understanding of the investment required for AI development. Although the rollout of the R1 model has amassed positive reactions, it has yet to prove that it can handle large-scale AI complexities and demands.

In a recent address to the House Republicans, US President Donald Trump responded to the news and said this was a 'wakeup call' for US technology firms, adding that this might be a positive: 'Instead of spending billions and billions, you'll spend less and hopefully come up with the same solution'.

While alarm bells are ringing for the 'Magnificent 7' this week, the situation could change quickly given uncertainty about how DeepSeek functions, its safety, and overall reliability.

Written by FP Markets Market Analyst Aaron Hill

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