![Chinese Startup's Cheaper AI Model Creates Ripples Causing US Stock Market to Drop by $1 Trillion in Single Day Chinese Startup's Cheaper AI Model Creates Ripples Causing US Stock Market to Drop by $1 Trillion in Single Day](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgji7Bn5qRkiPrrbj8a9Ygpt30vyt3eYy6pbhW5_AywrxzkI1HOiNYr_20JH3qbsKMSfMh9rznT7vTiSPp90UMMRrU4AsDVGJFZMSaPSG0HTtAE0YShTCj15099hvuusj7w6_XY-8MF9btVoiTddB-GlWxh-aBiReudxXJqIdOMOYfygSRNxPOMyyYqZdM/s16000-rw/1000053124.jpg)
China's DeepSeek AI has recently made headlines by shaking up the U.S. stock market. Here's a brief overview of what happened:
DeepSeek AI, a Chinese artificial intelligence startup, announced a breakthrough in AI technology with its R1 model, which can rival the performance of leading U.S. AI models like OpenAI's GPT-4 but at a fraction of the cost. This announcement caused a significant drop in the stock market, particularly affecting tech giants like Nvidia, which saw a historic $589 billion loss in market value in a single day. The overall impact on the tech-heavy Nasdaq index was a drop of nearly $1 trillion in global market value.
On 10 January 2025, DeepSeek released its first free chatbot app, based on the DeepSeek-R1 model, for iOS and Android. By 27 January, DeepSeek-R1 had surpassed ChatGPT as the most-downloaded free app on the iOS App Store in the United States, causing Nvidia's share price to drop by 18%. Besides United States, the Deepseek effect could also be seen in Japan as SoftBank stock price also fell by 8% during trading hours in Tokyo.
The key factors contributing to these market reaction include:
- Cost Efficiency: DeepSeek's AI model was developed for $5.6 million, much less than the billions spent by U.S. companies on similar models.
- Technological Leap: DeepSeek's model challenges the dominance of U.S. tech firms and raises questions about the sustainability of high capital expenditures in AI development.
- Market Panic: The sudden rise of a competitive AI model from China led to investor uncertainty and a sell-off in tech stocks.
Headquartered in Hangzhou, Zhejiang, DeepSeek is a Chinese AI startup founded by Liang Wenfeng in May 2023. As for investors, DeepSeek is funded by the Chinese hedge fund High-Flyer, which was co-founded by Liang Wenfeng. High-Flyer focuses on developing and using AI trading algorithms.
The 20-months old Chinese start-up has quickly gained attention with its DeepSeek-V3 and DeepSeek-R1 models, which have been praised for their efficiency and cost-effectiveness. Here are some key points about DeepSeek:
Cost-Effective Development: DeepSeek-V3 was trained using approximately 2,000 Nvidia H800 chips over 55 days, costing around $5.58 million. This is significantly less than the billions spent by other companies on similar models.
Advanced Capabilities: DeepSeek-R1 focuses on logical inference, mathematical reasoning, and real-time problem-solving, achieving performance comparable to OpenAI's o1 model.
Open Source: DeepSeek's models are available for free, making them accessible to a wider audience.
Global Impact: The launch of DeepSeek has caused a significant reaction in global markets, particularly affecting U.S. tech stocks.
DeepSeek's innovative approach to AI development has sparked discussions about the future of AI technology and its potential to democratize access to advanced AI tools.