The debut of DeepSeek's AI model caused a significant sell-off in U.S. tech stocks

From CNBC: 2025-01-27 11:07:32

A Chinese AI startup, DeepSeek, caused a major sell-off in U.S. tech stocks by unveiling a cost-effective model. Nvidia’s chips and power producers were affected, shaking investor confidence in the AI sector. DeepSeek’s R1 reasoning model outperformed competitors, gaining praise from industry experts.

DeepSeek, founded in 2023, released a competitive reasoning model called R1 that surpassed Open AI’s latest model. The company differentiates itself by providing a “chain of thought” to enhance response accuracy. The buzz around DeepSeek grew as it outperformed top American AI models, leading to a surge in popularity.

Venture capital firm Andreessen Horowitz and tech investor Chamath Palihapitiya lauded DeepSeek’s R1 model as a breakthrough in AI reasoning capabilities. The Chinese AI app surged to the top of Apple’s App Store charts, surpassing competitors like OpenAI’s ChatGPT. U.S. futures dropped significantly, signaling a rough day for tech stocks.

Nvidia shares plunged over 12% as DeepSeek’s model gained traction, marking the worst day since March 2020 for the chip producer. Other chip makers and power providers also faced significant losses, dragging down the Nasdaq Composite by as much as 3.6%. The market sell-off was fueled by DeepSeek’s disruptive impact on the AI industry.

Read more: How the buzz around Chinese AI model DeepSeek sparked a massive Nasdaq sell-off