US Tech Stocks Stabilize After DeepSeek AI App Sparks Market Volatility
US tech stocks showed signs of recovery on Tuesday following a sharp sell-off on Monday, triggered by the sudden rise of Chinese-made artificial intelligence (AI) app DeepSeek. The market turbulence came as investors reassessed the future of AI investments and the competitive landscape of the global tech industry.
Market Reaction to DeepSeek’s Breakthrough
DeepSeek, a Chinese AI app, claimed its model was developed at a fraction of the cost compared to its rivals, raising questions about the sustainability of US dominance in AI and the scale of investments by American firms. This announcement led to a significant drop in shares of US tech giants, particularly chipmaker Nvidia, which saw its stock plummet by 17% on Monday, wiping approximately $600 billion off its market value.
However, by midday trading on Tuesday, Nvidia’s shares rebounded, rising over 6%. Analysts suggested the initial sell-off may have been an overreaction, as the long-term implications of DeepSeek’s breakthrough remain uncertain.
US President Donald Trump’s Response
US President Donald Trump described the situation as a “wake-up call” for the US tech industry but remained optimistic about America’s continued leadership in AI. “If you could do it cheaper, if you could do it for less and get to the same end result, I think that’s a good thing for us,” he told reporters aboard Air Force One.
DeepSeek’s Rapid Rise and Global Impact
Launched just a week ago, DeepSeek has already become the most downloaded free app in the US. Its success highlights the growing competition between the US and China in the tech sector. The US has been restricting the sale of advanced chip technology to China, forcing Chinese AI developers to innovate with limited resources. This has led to the creation of AI models that require significantly less computing power and cost, potentially disrupting the industry.
Expert Opinions on DeepSeek’s Potential
Marina Zhang, an associate professor at the University of Technology Sydney, noted that DeepSeek’s ability to rival US models despite hardware limitations demonstrates the power of software ingenuity and data efficiency. Meanwhile, Ion Stoica, co-founder of AI software company Databricks, suggested that DeepSeek’s lower costs could accelerate AI adoption across industries, expanding the market faster.
Skepticism and Cybersecurity Concerns
Despite the optimism, some experts remain skeptical of DeepSeek’s claims. Tech mogul Elon Musk questioned the company’s assertion about the number of chips used in its model, hinting at potential discrepancies. Additionally, the app’s rapid popularity has raised cybersecurity concerns. Australian science minister Ed Husic urged caution, emphasizing the need for answers on data privacy and quality standards.
Global Market Performance
Following Monday’s volatility, US markets stabilized on Tuesday. By midday trading in New York, the Dow Jones was flat, the S&P 500 rose 0.8%, and the tech-heavy Nasdaq gained 1.7%. In the UK, the FTSE 100 index showed resilience, rising 0.59% by mid-afternoon. However, Japanese AI-related stocks, including Advantest, Softbank, and Tokyo Electron, fell sharply, dragging the Nikkei 225 down by 1.4%.
About DeepSeek and Its FounderDeepSeek was founded in 2023 by Liang Wenfeng, a 40-year-old information and electronic engineering graduate based in Hangzhou, China. Liang, who also founded a hedge fund that backed DeepSeek, recently attended a meeting between industry experts and Chinese Premier Li Qiang. In a July 2024 interview, Liang expressed surprise at the market’s reaction to DeepSeek’s pricing strategy, stating that the company simply followed its own pace in calculating costs and setting prices.
Looking Ahead
As the AI race intensifies, DeepSeek’s breakthrough underscores the importance of innovation and cost efficiency in shaping the future of technology. While the US remains a dominant player, the rise of Chinese AI models like DeepSeek signals a shift in the global tech landscape, with implications for investors, businesses, and policymakers worldwide.