On Monday, a groundbreaking development from a Chinese AI startup sent shockwaves through U.S. stock markets. DeepSeek, a one-year-old company, unveiled a ChatGPT-like AI model that operates at a significantly lower cost than existing models. What’s even more remarkable is that the system was developed using underpowered AI chips, circumventing U.S. efforts to restrict the supply of high-powered chips to China.
The news rattled tech investors, with chip giant Nvidia falling nearly 17% on Monday, while Meta and Alphabet also posted significant losses. DeepSeek’s rise has sparked renewed interest in undervalued Chinese AI companies, offering a potential alternative growth narrative. The market’s reliance on a select group of tech giants, often referred to as the “Magnificent Seven,” has been a key driver of recent gains, stocks movements on Monday could be seen as a natural period of adjustment rather than a fundamental shift.
On Tuesday, stocks rebounded as investors grew confident that the startup’s affordable AI assistant wouldn’t undermine valuations for Nvidia and other companies, especially given that DeepSeek’s computing power relies on Nvidia chips. With key earnings reports from Apple, Microsoft, and others due this week, markets will likely focus on company outlooks rather than short-term volatility, recognising that DeepSeek’s breakthrough doesn’t necessarily signal the undoing of years of U.S. dominance in AI technology.
In response, President Trump remarked that U.S. tech firms have received a wake-up call to push harder against global competition. However, he noted that the realisation OpenAI-like models can be developed more cost-effectively is ultimately good news for the U.S. tech industry.