On Monday, January 27, 2025, U.S. stocks plunged following a surprising breakthrough by a Chinese AI company, DeepSeek, which has threatened the dominance of the American tech industry. This breakthrough, revealed by the one-year-old startup, has sent shockwaves through the markets.
DeepSeek introduced its AI model, R1, which functions similarly to well-known systems like ChatGPT, but at a fraction of the cost of OpenAI, Google, and Meta’s models. The company revealed it spent only $5.6 million on computing power for its base model, compared to the hundreds of millions or even billions spent by U.S. companies on their AI technologies.
The impact was immediate. The tech-heavy Nasdaq fell 3.1%, while the broader S&P 500 dropped 1.5%. In contrast, the Dow Jones rose 0.7%, bolstered by health and consumer companies that could benefit from AI. Nvidia, the leading supplier of AI chips, saw its market value plunge nearly 17%, losing almost $600 billion—the largest single-day loss in market value in history.
The DeepSeek breakthrough is even more astonishing considering that the United States has spent years restricting the supply of high-power AI chips to China due to national security concerns. However, DeepSeek has managed to create its low-cost model using underpowered AI chips.
This revelation has led to a major reevaluation of investments in tech companies. Shares of major companies like Meta, Alphabet, and Nvidia also fell sharply. Additionally, energy companies, which had previously benefited from the increased electricity demand for AI data centers, saw significant drops.
While some experts believe the “threat” may be overstated, as DeepSeek’s model has not yet proven it can handle the complex tasks required in industrial sectors, others warn that this breakthrough could mark the beginning of a serious challenge to the U.S. tech industry’s dominance.
In conclusion, the American tech sector is now reassessing its future prospects in light of DeepSeek’s rise, with investors closely watching how Western giants respond to this unexpected challenge.
