Tech stocks tumble as Chinese AI startup DeepSeek pops market bubble

U.S. technology stocks sank on Monday, led by heavy declines in AI-linked shares, after Chinese startup DeepSeek introduced a free, open-source AI model that it claims is more efficient and far cheaper to develop.

Illustrative image

created by AI.

The tech-heavy Nasdaq Composite slid 3.07% to 19,341.83, while the S&P 500 lost 1.46% to 6,012.28. The Dow Jones Industrial Average rose 0.65% to 44,713.58, buoyed by defensive sectors. Mid-cap Russell 2000 dropped 1.04% and the VIX volatility index jumped 20.67%.

Analysts say DeepSeek’s low-cost approach challenges expectations that AI would drive big spending on hardware and data centers. Shares of Nvidia, a favorite of the AI boom, fell over 18%, with Broadcom, AMD, Microsoft, Amazon, and Palantir also down. “Investors sense valuations are stretched,” said Sam Stovall, chief investment strategist at CFRA Research.

All benchmarks now confirm it: Deepseek is truly is as good as OpenAI's o1 (which is top of the range) for 3% of the price. Boom.

And that's when you want to pay for the API. You can also use it Open Source for "free" (which you can't do with o1).

There's no overstating how… https://t.co/FcFSA1KRzu pic.twitter.com/FyFaclFYQo

— Arnaud Bertrand (@RnaudBertrand) January 24, 2025

AI hype has fueled massive inflows into tech stocks over the past 18 months. “If DeepSeek really is the better mousetrap, it could disrupt the AI narrative that’s propelled markets the last two years,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Last week, shares in U.S. AI companies surged after President Donald Trump announced a USD 500 billion AI infrastructure plan, backed by SoftBank, OpenAI, and Oracle. Investors will now watch quarterly results from Meta, Microsoft, Tesla, and Apple for signs of resilience in the sector.

New U.S. home sales rose to 698,000 in December, beating expectations, while oil futures slid around 2%.

(jh)

Source: PAP Biznes