The emergence of cheap AI DeepSeek shakes up the US tech industry

The US stock market plunged sharply on January 27 local time after the launch of an AI model from the young Chinese artificial intelligence company DeepSeek.

The sudden appearance threatens the halo of the American technology industry

Last week, DeepSeek, a one-year-old Chinese startup, introduced a surprising AI model last week.

The model, called R1, is similar to ChatGPT and has all the familiar capabilities but operates at a fraction of the cost of popular AI models from OpenAI, Google, or Meta, which has led many to believe that the aura of invincibility surrounding the US tech industry is under threat.

Illustration of Deepseek's artificial intelligence (AI) model. (Photo: Tehrantimes).

DeepSeek revealed that it spent just $5.6 million on computing power for its base model, far less than the hundreds of millions or billions of dollars that American companies spend on their AI technology. The announcement sent shockwaves across markets, especially the technology sector, earlier this week.

To see the difference in DeepSeek's AI investment costs compared to other technology corporations, we can point out that last week, Meta, the parent company of Facebook and Instagram, said it would spend more than $65 billion this year on AI development.

And last year, Sam Altman, CEO of OpenAI, predicted that the AI ​​industry would need trillions of dollars in investment to support the development of on-demand chips needed to power the energy-hungry data centers that run the industry’s complex models.

The tech-heavy Nasdaq fell 3.1% and the S&P 500 fell 1.5%. But the Dow Jones Industrial Average, which is driven by health care and consumer companies vulnerable to AI, rose 289 points, or about 0.7%. Meanwhile, the stock market had fallen much further earlier in the day.

On the social network X, Mr. Marc Andreessen, a supporter of President Donald Trump and one of the world's leading technology investors, commented that DeepSeek is one of the most amazing and impressive breakthroughs he has ever seen.

The astonishing achievement from a relatively unknown AI startup is all the more shocking given that the US has been trying for years to restrict the supply of high-powered AI chips to China over national security concerns, meaning DeepSeek has been able to develop a low-cost model for low-power AI chips.

US tech stocks plunge

US tech stocks were hit hard on January 27 local time.

Among them, shares of Nvidia (NVDA), the world's leading AI chip supplier, fell nearly 17% and lost $588.8 billion in market value, marking the largest market value loss for a stock in a single day, more than double the previous record of $240 billion that happened to Meta nearly three years ago.

Illustration of the US stock market. (Source: ANGELA).

While Nvidia started the day as the most valuable publicly traded stock on the market (more than $3.4 trillion), by the end of the day, Nvidia ended the day in third place behind Apple and Microsoft.

Shares of Meta and Google parent Alphabet also fell sharply. Nvidia’s competitors Marvell, Broadcom, Micron and TSMC also saw their shares fall sharply.

Shares of Oracle, Vertiv, Constellation, NuScale and other energy and data center companies all plunged.

That “shock” dragged down the US stock market because technology stocks make up a significant portion of the market, estimated at about 45% of the S&P 500, according to Keith Lerner, an analyst at Truist.

“The bottom line is that America's superior performance is due to technology and the leadership of American companies in AI,” Lerner said.

“The rollout of the DeepSeek model is causing investors to question the leadership of US companies and how much money is being spent and whether that spending is leading to returns (or is it overspending),” Mr. Lerner added.

Furthermore, this week marks the start of a slew of tech companies reporting earnings, so their reactions to DeepSeek could lead to some chaotic market moves in the days and weeks ahead. Meanwhile, investors are taking a closer look at Chinese AI companies.

“Chinese tech companies, including new entrants like DeepSeek, are trading at significant discounts due to geopolitical concerns and weaker global demand,” said Charu Chanana, chief investment strategist at Saxo.

He believes DeepSeek's rise could spark a new wave of investor interest in undervalued Chinese AI companies, which could lead to a growth story.

Need time to respond

CNN news agency quoted some experts saying that although this achievement is amazing, it may not be enough to reverse years of progress in America's AI leadership.

The likelihood of a customer switching to a Chinese startup is low.

So the market sell-off may have been a bit overdone, or perhaps investors are looking for an excuse to sell.

Time will tell whether the DeepSeek threat will actually materialize, said Michael Block, chief market strategist at Third Seven Capital. The race is on as to which technology will work and how big Western companies will respond and evolve.

On the other hand, Mr Block is skeptical: "The market has become so complacent at the beginning of the Trump 2.0 era, investors may have been looking for an excuse to retreat and this is a great excuse."

The industry also believes DeepSeek's report of ultra-low costs.

With its significant cost savings, the R1 model becomes a competitor to ChatGPT – a large consumer-focused language model.

However, it has yet to prove whether it can handle some of the ambitious AI capabilities for industries that currently require huge infrastructure investments.

“Thanks to its abundant human resources and abundant capital, the US remains the most promising ‘home ground’ where we expect to see the emergence of the first generation of self-improving AI,” said Giuseppe Sette, president of AI market research firm Reflexivity.

Source: https://www.baogiaothong.vn/su-xuat-hien-cua-ai-gia-re-deepseek-lam-rung-chuyen-nganh-cong-nghe-my-1922501281629181.htm