Chinese app nukes US stock market, $1 trillion lost in tech nightmare
The release of a single app from China wiped more than $1 trillion from the US stock market on Monday. Here’s what you need to know.
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Fears that the AI gold rush could be under threat rocked Wall Street on Monday as the US stock market lost more than a trillion dollars in a single day following the emergence of a ChatGPT-like model from China, triggering predictions of turmoil for Silicon Valley and accusations of cheating.
Last week’s release of the latest DeepSeek model initially received limited attention, overshadowed by the inauguration of US President Donald Trump that took place the same day.
However, over the weekend, the Chinese artificial intelligence start-up’s chatbot surged to become the most downloaded free app on Apple’s US App Store, displacing OpenAI’s ChatGPT.
Why it’s so important
What truly rattled the industry was DeepSeek’s claim that it developed its latest model, the R1, for only $5.6 million - peanuts when compared with the billions US tech giants have poured into AI, primarily on expensive Nvidia chips and software.
This development is particularly significant given that the AI boom, ignited by ChatGPT’s release in late 2022, has propelled Nvidia to become one of the world’s most valuable companies.
The news sent shockwaves through the US tech sector. Nvidia, whose semiconductors power the AI industry, fell more than 17 per cent in midday deals on Wall Street, erasing more than $500 billion of its market value.
The tech-rich Nasdaq index fell more than three per cent.
AI players Microsoft and Google parent Alphabet were firmly in the red while Meta bucked the trend to trade in the green.
But shares in another US chip-maker, Broadcom, fell 16 per cent while Dutch firm ASML, which makes the machines used to build semiconductors, saw its stock tumble 6.7 per cent.
Wall Street’s broadbased S&P 500 index shed 1.7 per cent while the Dow was flat at midday.
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Is the AI gold rush over?
The development exposed a critical concern: should tech giants continue pouring hundreds of billions into AI investment when a Chinese company can produce a comparable model so economically?
US “tech dominance is being challenged by China,” said Kathleen Brooks, research director at trading platform XTB. “The focus is now on whether China can do it better, quicker and more cost effectively than the US, and if they could win the AI race,” she said.
DeepSeek was also a poke in the eye to Washington and its priority of thwarting China by maintaining American technological dominance, which has already led to legislation that could ban TikTok in the United States.
On his first full day in office, Trump last week announced a major AI infrastructure project with OpenAI and Japan’s SoftBank, emhpasizing the competition with China as a key motivator.
Tech investor and Trump ally Marc Andreessen declared “Deepseek R1 is AI’s Sputnik moment,” referencing the 1957 launch of Earth’s first artificial satellite by the Soviet Union that stunned the Western world.
The situation is particularly remarkable since, as a Chinese company, DeepSeek lacks access to Nvidia’s state-of-the-art chips used to train AI models powering chatbots like ChatGPT.
Exports of Nvidia’s most powerful technology are blocked by order of the US government, given the strategic importance of developing AI.
“If China is catching up quickly to the US in the AI race, then the economics of AI will be turned on its head,” warned Kathleen Brooks, research director at XTB, in a note to clients.
Microsoft CEO Satya Nadella, visibly concerned, took to social media hours before markets opened to dismiss concerns about cheaply-produced AI, saying less expensive AI was good for everyone.
But last week at the World Economic Forum in Davis, Nadella warned: “We should take the developments out of China very, very seriously.”
Microsoft, an eager adopter of generative AI, plans to invest $80 billion in AI this year, while Meta announced at least $60 billion in investments on Friday.
Much of those investments go into the coffers of Nvidia.
Adding to the turmoil, the esteemed Stratechery tech newsletter and others suggested that DeepSeek’s innovations stemmed from necessity, as lacking access to powerful Nvidia-designed chips forced them to develop novel methods.
The blocks are “driving start-ups like DeepSeek to innovate in ways that prioritise efficiency, resource-pooling, and collaboration,” wrote the MIT Technology Review.
Elon Musk, who has invested heavily in Nvidia chips for his xAI company’s supercluster, suspects DeepSeek of secretly accessing banned H100 chips - an accusation also made by the CEO of ScaleAI, a prominent Silicon Valley start-up backed by Amazon and Meta.
But such accusations “sound like a rich kids team got outplayed by a poor kids team,” wrote Hong Kong-based investor Jen Zhu Scott on X.
- with AFP
Originally published as Chinese app nukes US stock market, $1 trillion lost in tech nightmare
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