Deepseek And The US Tech Wipeout

(MENAFN- Daily Forex) DeepSeek is a Chinese Artificial Intelligence (AI) startup, founded in 2023. It was an unknown Chinese startup until January 2025, when DeepSeek launched a free AI model that took the financial world by storm and triggered the largest stock market sell-off in history – A Game Changer?

On January 27th 2025, DeepSeek unveiled its most recent AI model, the R1, which it claimed uses less data and costs a fraction of the cost of rival models developed by US tech giants. DeepSeek said it spent only $5.6 million developing this model. By comparison, the costs of US-made AI models can run into hundreds of millions of dollars. It is difficult to know, however, if DeepSeek's figures are accurate.

DeepSeek also stated that it would make all of its models open-sourced, which means that the software would be publicly available for any developer to use, copy and distribute. In contrast, AI models such as ChatGPT and Gemini, developed by large US corporations, are closed-sourced, which means the software belongs to the owner, which owns all rights to its distribution, modification and use. Following DeepSeek's announcement, its R1 model became the number one downloaded free app on Apple's App store's Historic Crash

The appetite for AI seems insatiable and has sent tech stocks through the roof. On January 21st 2025, Nvidia, a US-based company which dominates the manufacture of advanced chips, overtook Apple in market value and again became the most valuable publicly-traded company in the world. Nvidia has exploded in growth, soaring 171% in 2024 and 238% in 2023 and has been called the“poster boy” for the US tech sector.

Nvidia's meteoric rise came to a crashing halt just one week after overtaking Apple, when DeepSeek announced its new AI model. On January 27, investors reacted with absolute panic and Nvidia lost close to 17% of its value, wiping out over $589 billion in the company's market capitalization. Still even after the massive sell-off, Nvidia was valued at $2.9 trillion. The rout wiped out a staggering $1 trillion off the capitalization of US technology stocks.

On the very same day as Nvidia's historic wipe-out, the company said in a statement that“DeepSeek is an excellent AI advancement” adding that Nvidia's products would be in even more demand. Despite Nividia's damage-control spin, DeepSeek has become a real threat to Nvidia and other US tech industry giants such as OpenAI, which created the 01 model which is the main rival of the Deepseek R1.

Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Will China Weaponize DeepSeek?

As the field of artificial intelligence has taken the world by storm, the battle for AI supremacy between the US and China has heated up. The US has tightened its exports controls on China's semiconductor industry since 2022. This includes the restriction on the sale and manufacture of advanced memory chips and chip making tools to China. These stringent measures have been taken in order to prevent China from using chips that can be used in AI applications that could be used for military purposes or against US national security.

Millions of Americans have downloaded DeepSeek and US officials are alarmed, as Chinese government regulations require domestic firms to share data with the government. This means that DeepSeek's privacy policy has little value, as China could access the private data of users, such as personal banking or health information.

DeepSeek has denied any connection or sharing information with the Chinese government when requested, but that claim is dubious at best, given the control and authority that the Chinese government has on information control in China. An illustration of the authority that the Chinese government wields on information is that DeepSeek has self-censored topics considered sensitive in China, deflecting queries about protests against the Chinese government or the status of Taiwan. This highlights the danger of China weaponizing DeepSeek in its battle to achieve dominance over the US in the AI field. The possibility of China overtaking the US and becoming the global leader in AI poses a major challenge to US national security Implications for Markets

The emergence of DeepSeek as a potential major player in the massively lucrative AI industry has turned the US tech sector on its head and triggered the largest stock wipe-out in history. DeepSeek's low-cost, open-source model is a potential“AI bubble-bursting” moment and could enable China to overtake the US as the dominant nation in the AI industry.

DeepSeek's new AI model could set the stage for additional models which may be less powerful than current US models but would be low-cost or even no-cost, making them attractive to consumers. US tech giants such as Nvidia and Microsoft could find themselves facing stiff competition from DeepSeek and other companies outside of the US which could hurt the massive earnings of large US tech companies. This presents a danger to the future valuation of these companies, and possibly by extension, the NASDAQ 100 Index .

It may be too early to state that DeepSeek has caused an AI revolution, but there is little doubt that the US tech giants are under pressure to quickly make adaptations to the sudden competition from China's DeepSeek.

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