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The emergence of DeepSeek’s free assistant has placed big doubts over the US market’s AI-driven rally of the past two years.
Chipmaker Nvidia saw almost $600bn wiped off its market value – the biggest drop in US stock market history – as a low-cost AI competitor from China took chunks out of several tech firms.
Nvidia, Meta Platforms, Microsoft, and Alphabet all saw their stocks come under pressure as investors questioned whether their share prices, already widely viewed as overblown following a two-year AI-led frenzy, were justified.
Market analysts put the combined losses in market value across US tech at well over $1trn (£802bn).
Leading AI chipmaker Nvidia’s shares bled 11% at the open on Wall Street but were up to 17% lower during afternoon dealing, while the tech-focused Nasdaq index slid by more than 3%.
The declines were all put down to the emergence late last week of a Chinese AI chatbot that uses lower-cost chips.
It has since become the most popular free application on Apple’s App Store across the US.
Start-up DeepSeek said its free app uses less data at a fraction of the cost of incumbent players’ own large language assistants.
The market response intensified later in the day despite revelations DeepSeek was limiting new registrations due to the fallout from a cyberattack and complications caused by high demand.
Brian Jacobsen, chief economist at Annex Wealth Management, said the company’s cost claims had placed in doubt the market’s AI-led dominance of the past two years that have seen AI-linked stocks repeatedly hit new highs.
He said of the repercussions: “It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centres.
“However, it could also mean that AI becomes more accessible and help kickstart the development of a wide array of useful applications,” he added.
DeepSeek’s AI assistant is certainly proving popular, having overtaken ChatGPT on the App Store.
The chatbot’s performance has even attracted praise from US rivals despite questions continuing to swirl over the 2023-founded company’s technological development.
It was achieved despite tech export controls, designed to protect US patents, imposed on China by president Joe Biden in 2021.
Nvidia responded to the sell-off in its shares with a statement suggesting that DeepSeek’s progress demonstrated the usefulness of its chips for the Chinese market and argued that more of its chips will be needed in future to meet demand for DeepSeek’s services.
The share price movements will likely be of concern to Mr Biden’s successor in the White House, Donald Trump, who has long accused Chinese firms of profiting from US technology.
