In January of 2025, DeepSeek's chatbot surpassed OpenAI's ChatGPT as the top free app on Apple's App Store in the US and other countries.

DeepSeek's models, such as V3 and R1, are built at a fraction of the cost of their Western counterparts, challenging the notion that advanced AI requires massive computing power.

DeepSeek's emergence and rapid success sent shockwaves through the US tech sector, causing significant declines in the stock prices of major tech companies, especially those involved in AI and chip manufacturing.

Theories abound as to what (or who) directed the timing of the recent announcement, being as it was coincident with the recent announcement of $500 billion to be invested over the next few years into AI in the United States. Was this 3D AI chess, played by a master strategist, or was it a bunch of Chinese nerds knocking stuff up in a garage in Beijing? Who can say?

It probably says at least as much about the buoyancy of the price of tech stocks in the US as it does about the Chinese AI program.

Image seems to have been created by Lord Bebo. (https://x.com/MyLordBebo) The image is watermarked with the x account handle.

Further details on the news by Gemini:

Major Impacts:

Nvidia: Nvidia, a leading provider of AI chips, suffered the most significant loss, with its share price plummeting by 17%. This erased about $593 billion in market value, marking the biggest one-day loss for a company in Wall Street history. This drastic drop was fueled by concerns that DeepSeek's ability to achieve comparable AI performance with less expensive chips could reduce demand for Nvidia's high-end products.  

Nasdaq Composite: The tech-heavy Nasdaq Composite index tumbled by 3%, reflecting the broader sell-off in the tech sector.  
Other Tech Giants: Other major tech companies also experienced declines, including:
Microsoft (down 2.1%)

Alphabet (Google's parent company, down 4.2%)  

Dell Technologies (down 8.7%)

Chipmakers and AI-related Companies: The Philadelphia semiconductor index, which tracks chipmakers, plunged by 7.9%, its biggest drop since March 2020. Other AI server makers like Broadcom and Marvell Technology also saw significant declines.  

Reasons for the Decline:

Concerns about AI Investment: DeepSeek's cost-effective approach to AI development raised concerns about the level of investment needed in the AI field. Investors worried that the high valuations of US tech companies might not be justified if similar AI capabilities could be achieved at a lower cost.  

Competition from China: DeepSeek's success highlighted the growing competitiveness of Chinese tech companies in the AI space. This challenged the assumption that US companies had a significant advantage in AI development due to their access to advanced chips and technology.

Uncertainty about Future Demand: DeepSeek's claims about using less data and cheaper chips for its AI models created uncertainty about the future demand for high-end chips and AI servers, impacting companies like Nvidia and Dell.  

Overall:

DeepSeek's emergence triggered a significant sell-off in US tech stocks, particularly those related to AI and chip manufacturing. This event highlighted the increasing competition in the AI space and raised questions about the future of AI development and investment. While the long-term impact remains to be seen, DeepSeek's success has undoubtedly shaken the confidence of investors in the US tech sector and intensified the global race for AI dominance.