KUALA LUMPUR – US tech stocks took a massive hit on Monday with Nvidia losing nearly US$600 billion (RM2.8 trillion) in market value – the largest single-day loss ever recorded by a publicly traded company.
This came after a surprise announcement from Chinese artificial intelligence (AI) startup DeepSeek, which unveiled a groundbreaking new model that challenged the dominance of US tech giants, CNN reported.
DeepSeek, a relatively unknown one-year-old company, introduced its R1 AI model, which boasts capabilities comparable to ChatGPT but operates at a fraction of the cost. Remarkably, DeepSeek claimed it spent only US$5.6 million on computing power for R1, a figure far below the billions spent by companies like OpenAI, Meta, and Google on their AI technologies.
The ripple effect of DeepSeek’s announcement was immediate as Nasdaq, heavily weighted with tech stocks, dropped 3.1%, while the S&P 500 slid 1.5%. Nvidia, which had been riding high as the world’s most valuable tech company, saw its value plummet by 17%, slipping to third place behind Apple and Microsoft.
“This raises real questions about whether US companies can maintain their lead in AI,” said Keith Lerner, an analyst at Truist.
“Investors are beginning to doubt whether the massive spending by US firms will translate into profits – or if it’s just overspending.”
Other tech heavyweights also took a hit. Meta, Alphabet (Google’s parent company), and semiconductor firms like Broadcom and Marvell all recorded significant losses.
For years, the US has imposed restrictions on the export of advanced AI chips to China, citing national security concerns. Still, DeepSeek managed to develop its model using less advanced hardware.
The industry has taken notice. Venture capitalist Marc Andreessen described the breakthrough as “one of the most amazing and impressive” he has ever seen. Meanwhile, DeepSeek’s rise has renewed attention on China’s growing capabilities in AI, a field where the US has traditionally held a commanding lead.
DeepSeek’s announcement has intensified scrutiny of the vast sums American companies are pouring into AI development. Meta recently committed to spending more than US$65 billion this year on AI, while OpenAI’s CEO, Sam Altman, has suggested that trillions of dollars may be needed to support the hardware and energy demands of large-scale AI systems.
“The race is on now,” said Michael Block, market strategist at Third Seven Capital.
“The question is how US companies will adapt to this challenge and whether they’ve been too complacent in their spending.”
Energy companies, which have benefited from powering AI data centres, also took a hit from DeepSeek’s rise. Constellation Energy, which had planned to revive the Three Mile Island nuclear plant for AI, fell 21%, while other players like Vistra and GE Vernova saw steep declines.
Natural gas and oil prices also dropped as investors reassessed the long-term demand for energy-intensive AI infrastructure.
The selloff extended to cryptocurrencies, with Bitcoin and other digital assets tumbling amidst the broader market unease.
However, the R1 model, which competes with ChatGPT, is focused on consumer applications and hasn’t yet proven its capabilities for more complex industrial uses that demand significant infrastructure investments.
Giuseppe Sette, president of AI market research firm Reflexivity, remains optimistic about the US’s position.
“Thanks to its rich talent and capital base, the US remains the most promising ‘home turf’ for the emergence of the first self-improving AI,” he said.
However, investors are starting to take a closer look at undervalued Chinese tech companies. “DeepSeek’s success could spark renewed interest in Chinese AI firms,” said Charu Chanana, chief investment strategist at Saxo. – January 28, 2025