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AI stock crash following launch of China’s DeepSeek 

China’s new chatbot has had an extraordinary impact on the US stock market, threatening US dominance of AI sector 

This weekend, China launched a new AI chatbot, DeepSeek, as a rival to well-established US AI bots such as OpenAI’s ChatGPT. Curious users were quick to try the new app. Within hours of launch, DeepSeek was the most frequently downloaded free app on the Apple’s app store in the US. By yesterday (Monday), US AI companies faced an extraordinary crash in value. Tech and energy stocks were particularly affected. 

AI assistant Deepseek on the App Store

AI assistant Deepseek on the App Store

One company alone, semiconductor giant Nvidia, lost almost $600bn (£482bn) in value in a single day. This is the biggest drop in the whole history of the US stock market according to financial experts at Bloomberg. 

While US dominance of the sector has been hardest hit, established AI-related companies in other countries, such Advantest, Softbank and Tokyo Electron in Japan, have also seen a notable downturn in share price.

Why did shareholders suddenly lose faith in these established AI companies in this way? A key factor is that the team behind DeepSeek say their latest model cost just $5.6m to develop, a fraction of the billions spend by rivals.

OpenAI, for instance, spent $5bn just last year.  Last week, Sam Altmann, CEO of OpenAI joined Larry Ellison of Oracle and US President Trump to announce a joint venture of some $500bn for AI infrastructure in the US. 

The previous week, UK Prime Minister Keir Starmer announced his own AI Opportunities Action Plan with investment of £14bn committed by leading private-sector tech firms. 

Many are now asking whether such huge sums are a sound investment, given the relatively low costs of launching DeepSeek. The Chinese app also seems to require significantly less computational power (or ‘compute’) and power than rival AI companies suggest – undermining many assumptions about the requirements of the sector. 

In part, this low-cost approach is the result of Chinese researchers having to find new methods to develop AI technology given US-imposed restrictions on sales to China of the advanced computer chips that were thought to be essential to AI. 

Now, some have questioned the veracity of DeepSeek’s various claims. Others have identified issues with the information that the DeepSeek provides on matters sensitive to the Chinese government. For example, the Guardian reports that DeepSeek failed to answer questions about political events such as the 1989 protest in Tiananmen Square or the ‘Umbrella Revolution’ in Hong Kong in 2014. 

The bot simply responded, ‘Sorry, that’s beyond my current scope. Let’s talk about something else.’ 

Yet some in turn counter that issues of bias and censorship are already a known factor in other AI systems and are not limited solely to DeepSeek. Arguments are likely to continue for some time ahead. But the arrival of DeepSeek has certainly shaken things up for the whole sector.  

Even Sam Altman admitted last night on X that DeepSeek was ‘impressive’, not least in ‘what they’re able to deliver for the price’. 

But he seemed to embrace the challenge it presented. ‘We will obviously deliver much better models’ he said. ‘It’s legit invigorating to have a new competitor!’

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Simon Guerrier
Writer and journalist for Infotec, Social Care Today and Air Quality News
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