China’s DeepSeek AI has sent shockwaves through Wall Street and Washington, triggering one of the biggest market crashes in recent history. The Nasdaq plunged by 3.1%, erasing over $1 trillion in market value. Nvidia alone lost nearly $600 billion, marking the largest one-day drop in U.S. market history.
DeepSeek, a Chinese AI startup, has made an AI breakthrough that rivals OpenAI and Google. Despite using fewer chips and at a fraction of the cost of its competitors, DeepSeek’s AI model has outperformed expectations. The company’s AI model only required 2,000 chips, while U.S. firms use tens of thousands of chips for similar models. This game-changing efficiency has led many to question whether the U.S. tech giants have overspent on AI, creating a costly and inefficient market.
The Stock Market Meltdown
As DeepSeek’s chatbot gained traction, tech giants like Nvidia, Microsoft, Alphabet, and others faced historic losses. Nvidia, which had capitalized on the AI boom, saw its stock price drop nearly 18%, losing $600 billion in value. Microsoft and Alphabet also experienced significant losses, with Alphabet dropping $100 billion and Microsoft losing $7 billion.
Marc Andreessen has called this DeepSeek development “AI’s Sputnik moment,” drawing parallels to when the USSR launched its first satellite in 1957, shaking the U.S.’s technological dominance. With DeepSeek’s success, China is emerging as a formidable competitor in the AI race, forcing the U.S. to reconsider its approach to AI and technology sanctions.
Read more: Chinese AI startup DeepSeek surpasses ChatGPT on U.S. App Store rankings
Did U.S. Sanctions Fail?
Despite U.S. sanctions restricting access to top-tier Nvidia chips, DeepSeek has built a cutting-edge AI model with far fewer resources. This raises questions about the effectiveness of U.S. sanctions and whether China has found ways to bypass them.
The success of DeepSeek, particularly with its free, open-source AI, threatens the profitability of U.S. tech firms. OpenAI and others had built expectations for AI-driven profits, but DeepSeek’s model could disrupt this. If the market continues to favor cost-efficient, open-source AI, stocks in U.S. companies like Nvidia, Microsoft, and Alphabet may struggle.
The Bigger Picture: Tech Giants and Market Dominance
The “Magnificent Seven” tech giants—Nvidia, Microsoft, Alphabet, Amazon, Apple, Meta, and Tesla—have driven the U.S. stock market’s growth, accounting for around 33% of the S&P 500’s market capitalization by early 2025. The performance of these companies directly impacts the overall market. As of 2024, the AI-driven stock surge had raised concerns about an “irrational bubble,” with analysts fearing that excessive growth might lead to a market correction.
DeepSeek’s AI model has raised alarms for Western tech firms, as it reportedly achieved its breakthrough with minimal investment—under $6 million—compared to billions spent by U.S. firms. For instance, competitors like Anthropic have spent between $100 million to $1 billion on their AI models. If DeepSeek’s AI continues to outperform, it could push U.S. tech firms to reconsider their pricing strategies.
Read more: DeepSeek: China’s AI Game-Changer
What’s Next?
DeepSeek’s AI has already topped the Apple App Store charts, gaining rapid traction among users. This could lead to increased competition for companies like OpenAI, who were previously able to charge high subscription fees. OpenAI’s monthly plans, which start at $20, could face price pressure as DeepSeek’s free offerings gain popularity.
As this AI race heats up, the future of U.S. tech stocks seems uncertain. Investors may need to brace for further volatility, especially if DeepSeek’s success proves sustainable. Whether DeepSeek is a fleeting trend or a true game-changer remains to be seen. However, if the company’s AI platform continues to outpace its U.S. counterparts, we could be witnessing the beginning of a major shift in the global AI landscape.