Nvidia Shares Plummet as Chinese AI Startup DeepSeek Challenges US Tech Dominance

2025-01-27

Nvidia shares experienced a significant drop in premarket trading, falling by as much as 14%, following the release of a cutting-edge AI model by Chinese startup DeepSeek. The model, which reportedly cost under $6 million to develop, has raised concerns about the competitiveness of U.S. tech firms in the AI sector. DeepSeek’s open-source large-language model, launched in late December, has been described as highly competitive, challenging the dominance of U.S. companies like OpenAI and sparking fears of a global tech sell-off.

The developments have led to a broader decline in tech stocks, with Nasdaq 100 futures down 3.3% and other major players like Microsoft, Palantir, and Alphabet also seeing premarket losses. In Europe, Dutch chip equipment maker ASML fell more than 10%, while Asian chip-related stocks, including SoftBank and Tokyo Electron, also experienced sharp declines.

Analysts have noted that DeepSeek’s advancements could disrupt the AI infrastructure market, particularly for Nvidia, which has been a key beneficiary of the AI boom. However, some experts argue that the panic may be overblown, as U.S. hyperscalers like Amazon, Microsoft, and Alphabet still hold significant advantages in access to advanced chips and data infrastructure.

The situation has also drawn attention from policymakers, with President Donald Trump signing an executive order to accelerate U.S. AI development and pledging $500 billion towards an AI infrastructure project called Stargate. Despite the current market turbulence, some analysts view the sell-off as a buying opportunity, particularly for Nvidia, which remains a leader in AI hardware and software.

The broader implications of DeepSeek’s rise highlight the intensifying competition in the global AI race, with U.S. and Chinese firms vying for dominance. As the sector evolves, the ability of companies to innovate and adapt will be crucial in determining the long-term winners in the AI landscape.

Peter Cohan

Peter Cohan's stories. Peter Cohan, a Boston-based senior contributor, covers stocks.

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