DeepSeek, a Chinese AI Startup with a $150M valuation, triggers over $1 trillion in U.S. tech market crash
Nickie Louise
Posted On January 27, 2025
U.S. stocks erased over $1 trillion in market value on Monday, driven by a DeepSeek-triggered sell-off. The major shake-up hit global markets on Monday as Chinese AI startup DeepSeek unleashed its R1 model, sending shockwaves through Silicon Valley and wiping out over $1 trillion in U.S. stock market value.
Nvidia, the biggest casualty, saw its valuation plummet by nearly $600 billion in what stands as its largest single-day loss. The sell-off followed DeepSeek’s unveiling of a budget-friendly AI model that matches leading U.S. competitors, shaking investor confidence.
The crash followed DeepSeek’s rapid climb to the top of the App Store charts after the launch of its open-source reasoning system. Market analysts are calling it a pivotal moment, with the startup’s success challenging the economic sustainability of AI investments by U.S. tech giants.
Nvidia Leads Tech Market Sell-Off
Nvidia’s stock tumbled 17.55% on Monday, dragging other tech heavyweights like Micron, Arm Holdings, Broadcom, and AMD into a broad sell-off. This downturn came as investors questioned the profitability of Silicon Valley’s hefty spending on AI hardware. The Nasdaq followed suit, falling 3.46%, with AI-related stocks taking the hardest hits.
Despite the losses, Nvidia praised DeepSeek’s innovation calling it ‘an excellent AI advancement.’ “DeepSeek’s R1 model demonstrates the potential of Test Time Scaling and highlights the power of open-source AI built on export-compliant compute,” a spokesperson told CNBC. The statement, however, did little to reassure investors.
Credit: FinViz
DeepSeek’s Cost-Efficient Model Disrupts the AI Landscape
DeepSeek’s R1, developed at a reported cost of under $6 million, has thrown a wrench into the business models of U.S. tech firms that have poured billions into AI research. The startup’s ability to deliver cutting-edge results on a shoestring budget is forcing investors to reconsider their faith in the scalability of AI hardware-driven revenue.
The repercussions spread beyond tech. Stocks tied to AI infrastructure, such as ASML and AMD, posted significant losses. Meanwhile, safer assets like bonds saw a surge in demand, and cryptocurrencies slumped as risk appetite evaporated.
The Fallout for Big Tech
The timing couldn’t be worse for companies like Microsoft and Meta, which are set to announce earnings this week. Both have heavily invested in AI, and the market is anxiously watching for signs of cooling enthusiasm in their quarterly results.
DeepSeek’s open-source model, launched in December, has sparked debate not only for its performance but also for its implications on the U.S.’s standing in the AI race. Third-party tests reportedly show the model outpacing OpenAI’s latest offerings, adding to concerns about whether Silicon Valley is over-investing without achieving a competitive edge.
Industry Leaders Weigh In
Marc Andreessen described DeepSeek’s achievement as “one of the most amazing breakthroughs in AI,” fueling a debate on whether U.S. tech giants are spending effectively. CNBC’s Brian Sullivan underscored the dramatic cost difference, asking, “What am I getting for $5.5 million compared to $1 billion?”
The Bigger Picture
With a modest $150 million valuation, DeepSeek has managed to spark a $1 trillion market rout, exposing vulnerabilities in the AI investment frenzy. As the dust settles, one question looms large: Has Silicon Valley underestimated the potential of resource-efficient innovation?
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