DeepSeek disrupts, Nvidia crumbles: Chinese AI start-up sparks $465B tech meltdown
DeepSeek’s AI model development cost around $6 mn, while Nvidia's latest AI chip, the Blackwell B200, involved an investment of over $10 bn in research and development
The shares of Nvidia Corp, the US-based company which makes chips for AI applications, tumbled as much as 13 per cent soon after the opening bell Monday (January 27), erasing about $465 billion from the company’s market capitalisation, the largest such rout in market history, driven by investor anxiety surrounding the emergence of DeepSeek, a Chinese artificial intelligence start-up.
The meltdown has impacted Nvidia so much that market analysts believe that major US companies have poured too much money into AI development. DeepSeek’s AI model development cost around $6 million, while Nvidia's latest AI chip, the Blackwell B200, involved a substantial investment of over $10 billion in research and development. Major US firms are projected to invest over a $1 trillion in AI in the next few years.
Also read: DeepSeek says it’s been hit by cyberattack, 'users unable to register'
US President Donald Trump was among the first to react to Nvidia’s shares’ downward spiral, stating that it was a “wake-up call” for the US industry. He told a Republican congressional retreat in Miami that the release of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we need to be laser-focused on competing to win… “So instead of spending billions and billions, you'll spend less, and you'll come up with hopefully the same solution," Trump added.
Rise of DeepSeek
DeepSeek, founded by Liang Wenfeng, a hedge fund manager with a background in finance, in July 2023, recently launched its AI model, DeepSeek R1, which is considered a competitor to prominent AI platforms such as OpenAI's ChatGPT and Meta's Llama.
DeepSeek's application has made it to the top of Apple's App Store, and it has showcased its competitive edge in a quick time. The company's ability to deliver comparable performance to established Western AI models at a fraction of the cost has caught investors off guard and prompted them to reassess the value of tech stocks heavily reliant on AI.
Impact on Nvidia
Nvidia, known for manufacturing advanced chips crucial for AI applications, saw its shares plummet by 13 per cent shortly after DeepSeek's launch, triggering fears that if DeepSeek can provide similar capabilities at lower costs, demand for Nvidia's high-performance chips may decline, leading to reevaluating tech stock valuations across the board.
Also read: Beyond the hype: The promise and pitfalls of Artificial Intelligence in India
Market analysts believe that DeepSeek's open-source model and cost-effective pricing could disrupt the entire AI supply chain, as it challenges the notion that massive investments in chip technology guarantee market dominance. Simply put, the competitive landscape is shifting, and experts are questioning whether US technology firms can remain leaders amid rising competition from Chinese startups like DeepSeek.
DeepSeek's tech edge
One of the keys to the success of DeepSeek's technology is that it leverages innovative strategies such as "inference-time computing," which allows it to optimise performance while reducing computational costs. This efficiency makes DeepSeek particularly appealing, as many companies have invested heavily in infrastructure without achieving proportional returns.
The start-up has released several models, including DeepSeek R1, which is designed for reasoning tasks and has reportedly outperformed leading models on benchmarks related to mathematics and reasoning. Furthermore, its open-source nature allows users to operate the model locally, ensuring privacy and reducing reliance on external servers—an attractive feature compared to proprietary models from established companies like OpenAI.
Also read: NvidiaAIsummit: 6 big things AI giant has for India
Implications
The emergence of DeepSeek raises critical questions about the future of AI development and investment strategies within the tech sector. As investors grapple with this new reality, how established companies will respond to this disruptive force remains uncertain. While some analysts express scepticism about DeepSeek's ability to penetrate major U.S. corporations' AI infrastructures due to geopolitical tensions and regulatory concerns, others warn that its success could undermine the investment rationale for the entire AI supply chain.
