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DeepSeek's AI Model Sparks Massive Nasdaq Sell-Off

AInvestMonday, Jan 27, 2025 11:15 am ET
2min read


The tech-heavy Nasdaq Composite Index plummeted on Monday, January 28, 2025, as investors grappled with the implications of a new, cost-effective AI model from a young Chinese startup called DeepSeek. The model, R1, outperformed OpenAI's latest offering, o1, in many third-party tests, raising questions about the competitive landscape and the value of U.S. tech giants' AI investments.



DeepSeek's emergence has sent shockwaves through the market, with Nvidia, the leading supplier of AI chips, taking a significant hit. Nvidia's stock price tumbled more than 12% on Monday, on track for its worst day since March 2020. Other chipmakers, power providers, and tech giants also felt the impact, as the tech-heavy Nasdaq Composite Index dropped as much as 3.6%.

The stunning achievement from DeepSeek becomes even more shocking when considering that the United States has worked to restrict the supply of high-power AI chips to China, citing national security concerns. That means DeepSeek was able to achieve its low-cost model on under-powered AI chips, challenging the narrative that U.S. companies have a significant lead in AI development.



DeepSeek's mobile app surged to the top of Apple's app store download charts over the weekend in the U.S., marking a tangible threat to pricier models such as OpenAI's ChatGPT. The buzz around DeepSeek reached a fever pitch on social media, with prominent tech investors like Marc Andreessen and Chamath Palihapitiya singing its praises.

However, the market sell-off may be a bit overdone, as one achievement, albeit a gobsmacking one, may not be enough to counter years of progress in American AI leadership. A massive customer shift to a Chinese startup is unlikely, and the market selloff could be an overreaction or an excuse for investors to pull back.

Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking.

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