Global Tech Stocks Tumble as Chinese AI Startup DeepSeek Challenges Western Dominance

2025-01-27

Tech stocks experienced a sharp decline globally as Chinese AI startup DeepSeek unveiled its latest AI model, R1, raising concerns about the sustainability of Western AI dominance and the need for massive hardware investments. Nvidia shares fell over 13% in premarket trading, while Nasdaq futures dropped significantly. Asian and European tech stocks, including SoftBank, ASML, and Tokyo Electron, also saw steep declines.

DeepSeek’s R1 model, released last week, demonstrated reasoning capabilities comparable to OpenAI’s o1 model but at a fraction of the cost. The startup, founded by quant fund chief Liang Wenfeng, achieved this despite U.S. restrictions on advanced semiconductor exports to China. DeepSeek’s open-source model quickly topped Apple’s App Store charts, sparking fears that it could disrupt the current AI business model, which relies heavily on high-end chips and extensive computing power.

Analysts noted that DeepSeek’s success highlights the potential for innovation under resource constraints, as the company optimized less powerful Nvidia H800 chips to achieve competitive results. This development has led to concerns about the future demand for Nvidia’s most advanced chips and the broader implications for U.S. tech giants’ pricing power and AI spending.

The rapid rise of DeepSeek has also raised questions about the U.S.’s ability to maintain its lead in the AI race, with investors and policymakers closely monitoring the situation. As the AI super-race intensifies, companies with first-mover advantages may face increasing pressure to innovate or risk being overtaken by more cost-efficient competitors.

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