China’s DeepSeek Triggers Global AI Stock Sell-Off
Investors across global markets rushed to exit AI-linked stocks on Monday after the debut of DeepSeek, a Chinese AI startup. This shook the dominance of industry leaders like Nvidia. DeepSeek unveiled a low-cost AI assistant that rivals established services, leading to a sell-off in technology-heavy indices and raising questions about the future scale of AI investments.
The startup’s assistant, launched just last week, quickly overtook U.S.-based ChatGPT in downloads on Apple’s App Store. This development prompted the Nasdaq to open 3% lower, with losses persisting throughout the day. Nvidia led the decline, tumbling more than 15%, followed by Broadcom, down 15%, and other tech giants like Microsoft and Alphabet, which slid 3.7% and 2.7%, respectively.
The ripple effects extended globally. The Philadelphia Semiconductor Index dropped 7.9%, marking its steepest fall since March 2020. Japan’s SoftBank Group fell 8.3%, while Europe’s ASML Holding and Siemens Energy shed 7.6% and 19%, respectively.
“If DeepSeek proves to be a disruptive ‘better mousetrap,’ it could reshape the AI narrative,” said Brian Jacobsen, chief economist at Annex Wealth Management. “This may mean reduced demand for chips, power, and data centers, but it could also democratize AI and drive innovation in new applications.”
A Disruption in the AI Landscape
DeepSeek, based in Hangzhou, has kept a low profile but has made waves with its R1 model, hailed as a potential “Sputnik moment” by Silicon Valley venture capitalist Marc Andreessen. “DeepSeek R1 is one of the most profound breakthroughs I’ve seen — an open-source gift to the world,” Andreessen stated on X.
According to reports, DeepSeek developed its DeepSeek-V3 model using Nvidia’s H800 chips, a cost-effective alternative initially designed to bypass U.S. export restrictions. The entire project was accomplished with a training budget of under $6 million, underscoring its cost-efficiency compared to industry norms.
Broader Market Impacts
The news comes amid heightened AI spending from major tech companies, which had fueled investor optimism and driven up valuations. Nvidia, for instance, saw its stock skyrocket 171% in 2024 and 239% in 2023, trading at 56 times its earnings — well above the Nasdaq average of 16 times earnings. Monday’s sell-off, however, reflects growing concerns about the sustainability of these valuations.
Beyond technology, sectors tied to AI infrastructure also took a hit. Vertiv Holdings, a data center infrastructure company, plunged 27%. Power utilities such as Vistra and Constellation Energy, which had been poised to benefit from AI-driven energy demand, saw losses of 24.4% and 18%, respectively.
Safe Havens Gain Appeal
As volatility gripped equity markets, investors turned to safer assets. U.S. Treasury yields fell to 4.55%, while the Japanese yen and Swiss franc strengthened against the dollar.
