The recent introduction of DeepSeek’s low-cost AI model has sent shockwaves through the U.S. tech sector, causing a massive market slump. Nvidia, a tech giant, experienced a historic drop in its stock value, losing $600 billion in market capitalization on Monday. This decline is part of a broader trend, with the overall U.S. tech industry shedding an estimated $1 trillion in market value in a single day.
DeepSeek’s Disruption
DeepSeek, a Chinese AI startup, has developed an AI model that outperforms established competitors like OpenAI’s GPT-4, while operating at a fraction of the cost. DeepSeek’s ability to deliver high performance at a lower cost has disrupted the market, leading to significant losses for tech companies heavily invested in computational power over efficiency. DeepSeek’s model reportedly costs under $5 million to operate, compared to the much higher costs of its competitors.
Market Impact
Nvidia’s stock began the day trading at $140 but plummeted by 16%, closing at $118. The plunge reflects growing concerns among investors about the sustainability of current AI investment strategies. DeepSeek’s success has made it the top free app in the U.S., according to Appfigures’ data, further emphasizing its impact on the market.
Export Control Concerns
Another factor contributing to the sell-off is the revelation that Chinese developers are training their AI models on Nvidia H100 chips. These chips are barred from being sold to China by U.S. export controls, raising questions about the effectiveness of these restrictions and China’s access to advanced hardware. Scale AI CEO Alexandr Wang mentioned that DeepSeek is using approximately 50,000 H100s, despite the export controls.
Open-Source AI Advantage
Professor Ion Stoica, a computer scientist at UC Berkeley and co-founder of Databricks and Anyscale, highlighted the U.S.’s reluctance to embrace open-source AI development. He noted that Chinese companies have gained an edge by betting on open-source AI, which includes open data, training algorithms, weights, and evaluations. This transparency and accessibility have allowed Chinese companies to advance rapidly in AI development.
Future Implications
Stoica emphasized the transformative potential of lower AI model costs. He suggested that if the cost of building or serving AI models drops significantly, it could challenge the current investment strategies of tech companies. However, it could also drive innovation and accelerate AI development, making these companies even more valuable in the long run.
