The stock of Nvidia dropped nearly 17%, wiping out around $600 billion in market value on January 27, 2024. This decline followed news about a Chinese generative AI model, developed by DeepSeek, which could challenge the US dominance in AI technology.
DeepSeek’s Competitive AI Model
DeepSeek, a startup based in Hangzhou, China, developed a chatbot that matches the capabilities of US AI models but at a fraction of the cost. The company spent just $5.6 million to create the chatbot, while American firms have invested billions. This model quickly gained popularity, becoming the top-rated free app on the US App Store.
The Growing Threat to US Tech Dominance
Kathleen Brooks, research director at XTB, stated, “The focus is now on whether China can do it better, quicker and more cost-effectively than the US, and if they could win the AI race.” This shift is challenging the US’s leadership in the tech sector.
Market Skepticism and Reactions
Despite the rise of DeepSeek, some experts remain skeptical. Art Hogan, chief market strategist at B. Riley Wealth, said, “Everyone is trying to figure out ‘Can it be believed?’ and ‘What does it mean?’” Many are questioning the validity of the Chinese company’s claims.
Cyberattacks and Market Impact
DeepSeek also faced challenges from cyberattacks. Due to large-scale malicious attacks, the company had to limit new user registrations. Meanwhile, other US tech companies suffered losses. Broadcom’s shares fell 17.4%, and ASML’s stock dropped 6.7%.
US Tech Giants Under Pressure
This week, tech giants like Meta and Microsoft are expected to report their earnings, which may offer insights into how the US companies are responding to the rise of DeepSeek. The emergence of this competitor has raised concerns about the future of US tech dominance.
Global Market Reactions
The impact of DeepSeek’s growth was felt globally. European stock exchanges in Frankfurt and Paris closed lower, while London’s market stayed flat. In Asia, Tokyo’s Nikkei 225 index fell by 0.9%, and other markets experienced slight declines.
Interest Rates and Trade Tensions
This week also brings decisions on interest rates from the US Federal Reserve and the European Central Bank. Additionally, trade tensions between the US and Colombia caused alarm, but tensions eased after Colombia agreed to accept deported citizens.
Key Market Figures
At the close of markets:
- New York: Dow up 0.7%, S&P 500 down 1.5%, Nasdaq down 3.1%
- London: FTSE 100 flat
- Paris: CAC 40 down 0.3%
- Frankfurt: DAX down 0.5%
- Tokyo: Nikkei 225 down 0.9%
- Hong Kong: Hang Seng Index up 0.7%
- Shanghai: Composite down 0.1%
Currency and Oil Prices
The Euro dropped slightly against the dollar, while the pound gained. Oil prices also fell, with Brent crude down by 1.8% and West Texas Intermediate down by 2.0%.
As the AI race heats up, the balance of power in tech continues to shift, with China emerging as a key player in the global market.
