Nasdaq futures sank Monday, January 27th, as Nvidia (NVDA) led a panicked rout in tech and AI stocks on fears that China is catching up with the U.S. on artificial intelligence despite not having access to the latest chips.
Invest with Confidence:
- Follow TipRanks' Top Wall Street Analysts to uncover their success rate and average return.
- Join thousands of data-driven investors – Build your Smart Portfolio for personalized insights.
Chinese startup DeepSeek’s new AI model launched last week rivals that of OpenAI’s o1 and Google’s (GOOGL) Gemini despite being developed at a fraction of the cost, raising fears about the rich valuations for the likes of NVDA and other semiconductor stocks.
Panic seems to be the order of the day as Nasdaq 100 futures tumbled over 4% as investors took fright, while there were big loses among European chipmakers, wiping a combined $1 trillion in market capitalization from tech stocks across the board.
Leading the declining stocks, NVDA fell 13%, Broadcom (AVGO) was down more than 12%, and Arm Holdings (ARM) tumbled more than 11% in pre-market trading. ASML (ASML) fell 10% in European trade.
By contrast, Chinese AI stocks rallied with mainland-listed Merit Interactive Co jumping 20%.
What Is DeepSeek?
DeepSeek is a Chinese startup that launched a free, open-source large-language model in December. The company is led by Chinese hedge-fund manager Liang Wenfeng.
Chatbot Arena, a platform hosted by researchers at University of California, Berkeley, says the performance of its latest R1 model launched last week is “on par” with OpenAI-o1, despite coming at a fraction of the cost.
Developed in just two months at a cost of under $6 million, it is being seen as a low-cost rival to some of the most advanced AI language models on the market.
Dario Amodei, CEO of the AI developer Anthropic, said last year the standard cost of building AI models was between $100 million and $1 billiion.
DeepSeek’s R1 model is ranked fourth on the Chatbot Arena leaderboard, with versions of Google’s Gemini and ChatGPT in the top spots. Its flagship V3 model is ranked eighth.
The company used a cluster of 2,000 Nvidia chips to train its V3 model, compared with the tens of thousands of chips usually used for training models of similar size, although it’s unclear if DeepSeek is using additional computing power that it has not announced.
Nevertheless, investors are taking note. “Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen,” Silicon Valley venture capitalist Marc Andreessen said in a post on X.
The product has risen to the top of Apple (AAPL) App Store rankings and has unnerved investors.
“It can potentially derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers,” Vey-Sern Ling, managing director at Union Bancaire Privee, told Bloomberg.
Jim Fan, a senior research scientist at Nvidia, wrote on X: “DeepSeek-R1 not only open-sources a barrage of models but also spills all the training secrets. They are perhaps the first OSS [open source software] project that shows major, sustained growth of an RL flywheel.”
What Is the Best AI Stock to Buy?
For investors interested in investing in AI, we have rounded up the best stocks that analysts are bullish about using the TipRanks Stocks Comparison tool.
