Chinese AI startup DeepSeek sparks US stock market selloff

US stocks took a significant dive on Monday, with chipmaker Nvidia losing nearly $600 billion in market value after the announcement of a surprising breakthrough by Chinese AI startup DeepSeek.

The company, which has been operational for just one year, unveiled its R1 model—a ChatGPT-like AI system that operates at a fraction of the cost of similar models from OpenAI, Google, and Meta. DeepSeek claimed it spent only $5.6 million on computing power for its base model, in stark contrast to the billions US companies invest in their AI technologies.

The news shook the market, particularly the tech sector, sending the Nasdaq down 3.1% and the S&P 500 falling by 1.5%. Nvidia saw the largest loss in market value in a single day, dropping nearly 17%. The plunge in tech stocks has raised concerns about the future of US AI dominance, especially as DeepSeek has achieved this feat with under-powered AI chips despite US restrictions on high-power chip exports to China.

With China’s AI companies gaining attention, investors are now reconsidering the value of US tech stocks, especially after years of seeing the US dominate AI innovation. As DeepSeek’s model gains traction, there are growing questions about the sustainability of US companies’ AI investments and whether they will lead to profitable returns.

While some analysts believe the US still holds the lead in AI due to its rich talent pool and infrastructure, DeepSeek’s achievement has investors rethinking the competitive landscape. The market’s reaction may be overblown, but it signals that the race for AI supremacy is intensifying.