Key Takeaways
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.
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.
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.”
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.”