The battle for hegemony in artificial intelligence was laid bare on Monday after the release of a Chinese chatbot extinguished over $1 trillion from the dominant US tech index, with one investor marking it a “Sputnik moment” for the world’s AI Giants.
Investors chastised global tech stocks on Monday after the rise of DeepSeek, an opponent to OpenAI and its ChatGPT app, shattered belief in the US AI boom by showing it could provide the same performance with fewer resources.
The tech-heavy Nasdaq Composite shut down at 3.1%, with the fall at one point cleaning more than $1tn off the index from its closing value of $32.5tn last week.
Nvidia, a leading manufacturer of the computer chips that power AI models, was overtaken by Apple as the most valuable listed company in the US after its shares dropped 17%, washing almost $600bn off its market value. Google’s parent company lost $100bn and Microsoft $7bn.
Nvidia’s shrink was the biggest in US stock market history. The DeepSeek AI assistant also topped the Apple app store in the US and UK for the weekend, surpassing OpenAI’s ChatGPT.
US President Donald Trump marked DeepSeek as a “wake-up call for our industries that we need to be laser-focused on competing to win.” Trump further said,That’s good because you don’t have to spend as much money. I view that as a positive, as an asset.”
OpenAI chief executive Sam Altman complimented DeepSeek’s launch, saying that it was “invigorating to have a new competitor.” In a social media post, Altman called it “an impressive model, particularly around what they’re able to deliver for the price.”.
Japanese tech firms related to the AI sector plummeted for a second consecutive day on Tuesday as investors tracked the route on Wall Street. Advantest fell more than 9%, while tech investor SoftBank, a significant investor in Trump’s Stargate AI project, fell more than 5%, having lost 8% the day before.
DeepSeek was struck with a cyberattack on Monday, forcing it to briefly restrict registrations. On its status page, DeepSeek said it began to investigate the issue on Monday. After about two hours of examination, the company said it was the victim of a “large-scale malicious attack.”.
DeepSeek asserted to have leveraged fewer chips than its opponents to develop its models, making them cheaper to produce and raising questions over multibillion-dollar AI spending by US tech giants that has surged in the markets in recent years.
The company designed bespoke algorithms to create its models using reduced-capability H800 chips manufactured by Nvidia.
Nvidia’s most advanced chips, H100s, have been barred from export to China since September 2022 by US sanctions. Nvidia then manufactured the less powerful H800 chips for the Chinese market, although they were also prohibited from exporting to China last October.
DeepSeek’s success at building an advanced AI model without access to the most advanced US technology has raised worries about the efficiency of US efforts to block China’s tech sector.
Marc Andreessen, a prominent US venture capitalist, compared the release of DeepSeek’s R1 model to a crucial moment in the US-USSR space race, posting on X that it was AI’s “Sputnik moment,” mentioning when the Soviet Union shocked its Cold War competitor by launching a satellite into orbit.
DeepSeek claimed that its R1 model surpasses OpenAI’s o1-mini model across “various standards.”
The company was founded by the entrepreneur Liang Wenfeng, who owns a hedge fund, High-Flyer Capital, that utilises AI to recognise patterns in stock prices. Liang reportedly initiated buying Nvidia chips in 2021 to develop AI models as a hobby, financed by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.
The company is entirely focused on research rather than commercial products—the DeepSeek assistant and underlying code can be downloaded for free, while DeepSeek’s models are also less expensive to operate than OpenAI’s o1.
In an interview Liang said, “AI should be accessible and affordable to everyone.”. Liang also said that the gap between US and Chinese AI was only one to two years.
The DeepSeek development raises concerns over the need for massive investment in AI infrastructure, such as chips, and the market-leading role of US tech companies in AI, which, in result, endanger American tech sector valuations under thrust.
DeepSeek claims R1 cost $5.6m to develop, compared with much higher estimates for western-developed models, although experts have alerted that may be an underestimate. Last year Dario Amodei, the co-founder of leading AI firm Anthropic, put the current cost of preparing advanced models at between $100m and $1bn.
The pan-European stocks fell on Monday, and major European technology stocks were dropped. The Dutch chipmaker ASML shrunk by 7%, while Germany’s Siemens Energy, which gives hardware for AI infrastructure, was dropped nearly 20%, and France’s digital automation company Schneider Electric dived by 9.5%.
