Home Bots & Business DeepSeek AI Impacts U.S. Technology Sector, Drives Market Losses

DeepSeek AI Impacts U.S. Technology Sector, Drives Market Losses

by Marco van der Hoeven

Chinese artificial intelligence startup DeepSeek has introduced a new language model, R1, that reportedly rivals established U.S. AI systems while operating at significantly lower costs. This development has caused reactions in global markets, with U.S. tech stocks experiencing significant losses.

Following DeepSeek’s announcement, the Nasdaq Composite dropped by 3.1% on Monday, and the S&P 500 declined by 1.5%. Nvidia, a leading supplier of AI chips, saw its stock price fall by 17%, resulting in a $588.8 billion reduction in market value—the largest single-day loss ever recorded for a publicly traded company. Other technology companies, including Meta and Alphabet, also recorded substantial declines, along with chip manufacturers such as Broadcom and Micron.

Energy companies connected to AI-related demand also saw their stock prices drop. Constellation Energy fell 21%, while Vistra declined by 28%. Commodities like natural gas and oil followed suit, with prices dropping by 5.9% and over 2%, respectively.

DeepSeek’s Claimed Cost Advantage

DeepSeek’s R1 model is said to match the performance of advanced language models like OpenAI’s ChatGPT and Google’s Bard. However, the company claims it achieved this at a cost of only $5.6 million in computing resources, significantly less than the budgets of its U.S. competitors, which often range in the hundreds of millions or billions of dollars.

This cost advantage has not been independently verified, and analysts have noted that the market’s reaction hinges on the accuracy of DeepSeek’s cost efficiency claims. If accurate, these claims challenge the prevailing belief that advanced hardware and large-scale investments are essential for cutting-edge AI development.

Investor Concerns

DeepSeek’s announcement has led investors to question the high levels of spending by U.S. companies in the AI sector. Meta recently announced a $65 billion investment in AI infrastructure, while OpenAI and other firms have emphasized the need for massive funding to support energy-intensive data centers. The reported lower costs by DeepSeek have raised doubts about whether such expenditures are justified or sustainable.

Prominent industry figures have weighed in on the development. Investor Marc Andreessen described DeepSeek’s achievement as significant, while others have noted that its success may prompt U.S. firms to reevaluate their strategies and spending.

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