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DeepSeek’s Cost-effective AI Model Casts Doubts on High Valuations of Companies Like Nvidia

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Giuseppe Ciccomascolo
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Key Takeaways

  • DeepSeek’s AI model, which runs on less advanced chips, challenges the high valuations of companies like Nvidia.
  • DeepSeek’s success highlights China’s ability to compete in AI despite U.S. trade restrictions.
  • Tencent, Alibaba and Baidu saw stock gains, while Japanese chipmakers faced losses on Monday.

DeepSeek’s cost-effective AI model, using less advanced chips, is challenging Nvidia’s dominance, driving declines in artificial intelligence (AI) stocks.

The tech firm has sparked optimism in Chinese tech firms like Tencent, Alibaba and Baidu. At the same time, Japan’s chipmakers face rising competition as China accelerates AI advancements.

Impact on U.S. Tech Companies

Buzz has been growing over DeepSeek’s cost-effective AI model, which runs on less advanced chips, raising doubts about the high valuations of companies like Nvidia, which have been central to the AI boom.

DeepSeek’s model, competitive with offerings from OpenAI and Meta, has gained attention for its transparency, quickly reaching the top of the App Store. This has led to a decline in AI-related stocks, including Nvidia, as investors reconsider the energy and computing power required for AI.

DeepSeek’s success challenges the assumption that China’s AI tech is years behind the U.S., as it uses open-source technology that’s widely accessible.

“DeepSeek is going to challenge Silicon Valley’s leadership, disrupting the global tech landscape and reshaping the direction of the AI arms race. The launch of this innovation underscores a historic pivot in the balance of technological power. U.S. Big Tech, long considered untouchable, is facing credible and intensifying competition from China,” deVere Group CEO, Nigel Green, opined. 

Positive Sentiment in Asian Markets

Leading Chinese internet stocks, including Tencent, Alibaba and Baidu, saw gains fueled by speculation around AI startup DeepSeek’s advancements.

Investors are optimistic that the mentioned companies will collaborate with DeepSeek, enhancing their global competitiveness. Tencent shares rose by 1.3%, Alibaba gained 3.5% and Baidu increased by 4.2%, respectively. This reflects positive sentiment toward China’s growing AI capabilities.

Green said, “For investors, this is both a warning and an opportunity. It’s time to rethink traditional tech allocations and seek out new areas of growth.”

Tencent stock performance
Tencent stock increased after DeepSeek’s success boosted investors’ sentiment. | Credit: Yahoo! Finance

Susannah Streeter, head of money and markets at Hargreaves Lansdown, focuses  on the importance of DeepSeek’s model for Asian tech firms.

“DeepSeek threatens to spook big tech and has already sent shivers through Silicon Valley by releasing details about how to build large language models more cheaply using low-cost Chinese chips,” she said.

“While they don’t offer the cutting-edge tech of Nvidia’s graphics processing units, the efficacy of the budget version and the willingness of DeepSeek to share its know-how may start to chip away at Nvidia’s dominance. DeepSeek has access to deep wells of Chinese data and has deep pockets,” she continued, adding:

“While Nvidia latest chips are still far superior in terms of performance, with cheaper rivals making progress, there is likely to be a knock-on effect globally, with competing U.S. and Chinese spheres of AI influence set to emerge.”

Japanese Chipmakers Stocks Drop

However, not all Asian tech stocks had a reason to smile on Monday. In fact, Japanese chip stocks fell as DeepSeek challenges Asian tech companies linked to the U.S. AI value chain.

Advantest, a semiconductor testing equipment supplier for Nvidia, dropped by 8.6%. Tokyo Electron and Renesas Electronics fell by 4.9% and 1.2%, respectively.

Furthermore, Softbank, which owns chip designer Arm, fell more than others and saw an 8.3% decline.

Investor concerns over DeepSeek’s cheap AI development and the potential disruption of U.S. tech giants’ pricing power led to a sell-off.

With DeepSeek’s breakthrough model challenging costly AI infrastructure, Japan’s chipmakers face growing competition from China’s rapid progress. This is raising doubts about their ability to scale production quickly.

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Giuseppe Ciccomascolo

Giuseppe Ciccomascolo began his career as an investigative journalist in Italy, where he contributed to both local and national newspapers, focusing on various financial sectors. Upon relocating to London, he worked as an analyst for Fitch's CapitalStructure and later as a Senior Reporter for Alliance News. In 2017, Giuseppe transitioned to covering cryptocurrency-related news, producing documentaries and articles on Bitcoin and other emerging digital currencies. He also played a pivotal role in establishing the academy for a cryptocurrency exchange website. Crypto remained his primary area of interest throughout his tenure as a writer for ThirdFloor.
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