The top line
The release of a low-cost artificial intelligence model by China’s DeepSec sent shockwaves through the U.S. stock market on Monday, triggering a massive sell-off underlining a weak backdrop to a record market.
Monday was a brutal day for major US tech stocks.
Time line
US stocks were in turmoil on Monday: the S&P 500 fell nearly 2% at 12:30 pm EST, and the tech-heavy Nasdaq plunged 3%, heading for its worst percentage loss since Dec. 18 and Third worst day of last two years
Shares of Nvidia fell 15% as of 11:15 a.m. EST, heading for their worst daily percentage loss since March 2020, when stocks briefly crashed at the start of the COVID-19 pandemic. And was possibly the biggest single day loss in that regard. By 11:30 a.m., Broadcom had fallen 16 percent by the market cap of any company in history.
Domestic leaders in AI posted sharp losses on the open Monday as Microsoft fell 4% and Tesla fell 2%, semiconductor chip architect Nvidia shed 12% and other major chip stocks such as Broadcom and Taiwan Semiconductor Manufacturing Co lost 10%. registered a decline of more than %.
JP Morgan analyst Sandeep Deshpande asked In a note to clients, how DeepSec’s low-cost success “is giving investors ideas that the AI investment cycle may be much higher and that a more efficient future is possible.”
Citing the impressive set of 7 trillion-dollar U.S. companies, including Nvidia and Tesla, that make up the majority of the 2020 bull market, Ed Yardini, founder of Yardini Research, noted that “China has taken all its glory. A competitive threat has emerged.”
Billionaire investor Marc Andreessen Called Deepsec’s R1 model “AI’s Sputnik moment.”
DeepSec became a mobile app. The number 1 app In iPhone Stores in Australia, Canada, China, Singapore, US and UK
Another Chinese company, ByteDance, revealed an update to its flagship AI model. The word started Circulation That new overseas products pose a strategic threat to US tech giants pursuing AI dominance.
DeepSec launched its R1 advanced reasoning model, claiming that it rivaled OpenAI’s o1 product on several performance criteria and was built for less than US companies such as Microsoft and Meta.
What caused the stock panic?
The sell-off comes amid fears over the weekend that the relatively unknown Chinese firm DeepSec pits OpenAI against its competing generative AI model, which is backed by Microsoft and Nvidia. There’s the American firm, and its viral chatbot ChatGPT, with DeepSeek running prominently. Price of US-based competitors. The idea of a rival undermining the largely U.S.-based generative AI revolution undermined historic investor confidence in U.S. stocks, as S&P companies traded at levels similar to those of the dot-com bubble in terms of revenues and profits. Competition is in, meaning investors are ponying up more to get a piece of stateside equities.
Important quote
Yardini warned that DeepSec is “bad news” for US tech behemoths that “plan to dominate the AI market with their expensive AI services.”
What is Deepseek-R1?
The new DeepSeq product is an advanced reasoning model similar to OpenAI’s o1 that was released on Monday, January 20th. R1 is done. Comparison Favorable to the best of OpenAI and Meta’s products, while being more efficient, cheaper and potentially built without relying on very powerful and expensive AI accelerators that are difficult to buy in China due to US export controls. There is a model. Scoring DeepSec says it ranks in the top five, nearly matching or outperforming rival models in math tasks, general knowledge and question-and-answer performance benchmarks. Chatbot ArenaA performance platform sponsored by the University of California, Berkeley.
Chief critic
“Don’t buy into the doomsday scenarios” about the DeepSec, Bernstein analyst Stacey Rasgan wrote in a Monday note to clients, adding that “panic over the weekend appears to be high.” Of the deep sec claim Its estimate of just $5.6 million in computing power to develop the model is “plainly false,” according to Rasgan, who said the misleading figure included other “substantial” costs related to the development of its AI model. do not account for American AI billionaires like Tesla CEO Elon Musk and ScaleAI CEO Alexander Wang Theorizing Deepsec actually owns $1 billion worth of Nvidia equipment.
Key background
DeepSeek AI joins the big language model arms race that includes OpenAI, Facebook parent Meta and Google parent Alphabet. The AI battle reached a national stage last week when President Donald Trump announced a $500 billion joint venture to build the infrastructure needed to power OpenAI’s artificial general intelligence initiatives. In his speech last Tuesday, Trump specifically called out The importance of beating China on AI for the US, he says of the technology: “We want to keep it in this country. China is a competitor and there are other competitors. Major tech figures, including billionaire Trump ally Marc Andreessen and Vivek Ramaswamy Every single one Likened DeepSec’s New Technology for US AI’s “Sputnik Moment” Nvidia, which was the world’s most valuable company before Monday’s slide, designs much of the semiconductor and data storage technology needed for large-scale AI, including DeepSeek, is enjoying a profit explosion as the world Companies all over were fighting over Nvidia’s graphics processing units. . The Magnificent Seven includes Alphabet, Amazon, Apple, MetaMicrosoft, Nvidia and Tesla, with a market value of about $17 trillion between the seven companies.
Tangent
AI revolution boosts US stocks Record Leadership in the global stock market, with US companies accounting for 67% of the global equity market by the end of 2024. According to The S&P is up 201% over the past decade through Friday, eclipsing an 8% loss for China’s leading CSI 300 index and a 33% gain for Europe’s Stoxx 600, according to FactSet data to MSCI.
What to watch for?
Monday’s sell-off sets the stage for a remarkable week for big tech stocks. Meta, Microsoft and Tesla will all report fourth-quarter earnings on Wednesday afternoon, while Apple will follow on Thursday.
Further reading
