DeepSeek AI Disrupts Tech Market with Cost-Effective Models, Shakes Investor Sentiment

DeepSeek AI has emerged as a major disruptor in the tech industry with its recent advancements in AI technology, causing a significant shift in the market. The company’s introduction of cost-effective AI models has sparked a wave of reactions, especially among tech investors and industry giants like Nvidia.

DeepSeek’s Impact on the Market

DeepSeek AI’s rise has caused a sharp drop in the stock prices of leading tech companies, particularly in the U.S. Nvidia, one of the biggest players in AI and GPU technology, lost nearly $600 billion in market value. This decline is largely attributed to concerns that DeepSeek’s ability to deliver competitive AI models at a much lower cost could threaten the dominance of established companies.

Retail investors purchased a record $562.18 million in NVIDIA stock during Monday’s DeepSeek-led selloff, according to Vanda Research.

Short Sellers Make $6.6B as Nvidia Drops $593B

Short sellers of AI stocks made huge profits after China’s DeepSeek launched affordable AI models that challenged U.S. companies, causing a big drop in Nvidia’s value. Traders betting against Nvidia made $6.6 billion, the largest single-day profit ever for the stock. Nvidia’s market value dropped by $593 billion, the biggest one-day loss in history. Broadcom short sellers earned over $2 billion, and investors betting against companies like Super Micro, Equinix, and Vistra made a combined $900 million. (Source: Ortex)

Innovation with DeepSeek-R1

The key to DeepSeek’s success is its new AI model, DeepSeek-R1. This model claims to match or even surpass the capabilities of top-tier AI models from companies like OpenAI and Meta, but at a fraction of the cost. Developed for less than $6 million, DeepSeek-R1 stands in stark contrast to the billions of dollars spent by Western firms on similar AI technologies.

Political and Economic Reactions

The rise of DeepSeek has drawn attention from political figures, including former U.S. President Donald Trump, who called it a “wake-up call” for American industries. Trump emphasized the importance of the U.S. maintaining its competitive edge in AI, prompting discussions about how the U.S. should respond to China’s growing advancements in the field.

Investor Sentiment Shaken

The sudden popularity of DeepSeek’s AI assistant, which quickly became the most downloaded free app in the U.S., has led investors to rethink the valuations of AI-focused companies. This shift in sentiment has caused a ripple effect, with tech-heavy indices like the Nasdaq showing signs of decline.

Nvidia’s Response and Market Concerns

Despite the sharp fall in Nvidia’s stock, the company acknowledged DeepSeek’s AI model as a significant advancement, suggesting that it could boost demand for their GPUs. However, there are ongoing concerns about how DeepSeek’s low-cost, highly efficient model could impact the broader investment landscape in AI infrastructure.

Global AI Competition and U.S. Export Controls

DeepSeek’s success raises important questions about the effectiveness of U.S. export controls on high-powered AI chips to China. While U.S. companies have been restricted in sending cutting-edge chips to China, DeepSeek has achieved its impressive results using less powerful hardware. This highlights broader debates on the future of AI research and development, focusing on model efficiency and cost-effectiveness.

The Bigger Picture: A Shift in AI Dynamics

This rapid development in the AI industry signals a significant change. DeepSeek’s cost-efficient, open-source approach could challenge the established market dynamics, prompting both investors and tech giants to reconsider their strategies. With the rise of more affordable AI models, the way companies approach research, development, and investment in AI technology is likely to change, leading to an even more competitive global landscape.

Morgan Stanley Lowers NVDA Target to $152

Morgan Stanley has reduced its target price for NVDA from $166 to $152. The analyst points out that DeepSeek’s AI innovations might cause prices to decrease, potentially surprising the market. This could lead to export controls or a cut in AI spending. Despite this, the analyst remains optimistic about the overall semiconductor sector.

Tigress Financial Partners raises NVIDIA rating to Strong Buy from Buy, with a price target of $220.

Ivan Feinseth, a financial analyst at Tigress, upgraded Nvidia’s stock from “Buy” to “Strong Buy,” raising the price target from $170 to $220. The firm sees the recent drop in Nvidia’s stock price as a great buying opportunity. This drop happened after news of a Chinese startup, DeepSeek, unveiling its new AI model, R1, which it claims can perform like OpenAI’s models at a lower cost. However, Tigress believes the actual abilities of DeepSeek’s R1 AI are unclear and that there are significant security concerns. Tigress believes Nvidia will continue to be a major player in AI, as it remains the top supplier of graphics processors for AI, making it a strong investment.

Vanda Research reports that retail investors bought a record $562.18 million worth of NVIDIA shares during Monday’s selloff, a trend attributed to the impact of DeepSeek.

Update

DeepSeek AI Chatbot Fails in Accuracy Test, Sparks Concerns Over U.S. Tech Dominance

Chinese AI startup DeepSeek’s chatbot scored only 17% accuracy in a NewsGuard audit, ranking tenth out of eleven compared to Western competitors like OpenAI’s ChatGPT and Google Gemini. It repeated false claims 30% of the time and provided vague answers 53% of the time, leading to an 83% fail rate. This was worse than the average 62% fail rate of Western AI systems. Despite this, DeepSeek’s chatbot became the most downloaded app in Apple’s App Store shortly after its release, causing concerns about the U.S.’s AI lead and a $1 trillion drop in U.S. tech stocks. NewsGuard used 300 prompts, including 30 about false claims, to test DeepSeek, with some prompts reflecting China’s government stance.

Although DeepSeek’s AI has low accuracy, it claims to be as good as OpenAI but much cheaper. Just days after launching, it became the most downloaded app on Apple’s App Store, raising concerns about the U.S. losing its lead in AI and causing a $1 trillion drop in U.S. tech stocks.

Update

President Trump is considering halting Nvidia’s chip sales to China due to competition from DeepSeek. The stock has fallen to its lowest point of the day, down nearly 7%.

The Trump administration is considering expanding restrictions on Nvidia’s H20 chip, a scaled-down AI processor meant to comply with U.S. export controls. Despite current trade limits, Nvidia earned nearly $10B from China in 2024. Additional restrictions could harm Nvidia’s sales and push China to boost its AI chip production. Commerce Secretary nominee Howard Lutnick has expressed strong support for semiconductor restrictions, but no decision has been made yet. The talks come amid growing concerns over China’s AI progress, exemplified by DeepSeek’s new model developed using older Nvidia chips at a much lower cost.

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