Global tech stocks endured a rough start to the week amid a sell-off sparked by the emergence of China’s startup DeepSeek as a challenger to U.S. dominance in the artificial intelligence sector.
Last week, DeepSeek presented its free-to-use AI model, DeepSeek-R1, which generated a massive buzz and rose to the top of the App Store charts over the weekend. The company says it developed the model in just two months at a cost of $6 million and that DeepSeek-R1 has on-par, if not superior, capabilities to similar models from U.S. companies like OpenAI and Meta.
This prompted a widespread debate about the valuation of AI-centric companies and the amount of funds that tech giants are dedicating to developing AI technology. Investors responded with a sell-off that sent the shares of Nvidia, Meta, Microsoft, and Amazon plunging.
Nvidia, which controls up to 90% of the AI chips market, has taken the biggest hit and was down more than 11% in premarket trading.
“DeepSeek shows that it is possible to develop powerful AI models that cost less,” Vey-Sern Ling, managing director at Union Bancaire Privee, told Fortune. “It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.”