Deepseek AI innovation -wake up call

Global investors sold off technology stocks on Monday due to concerns that a new, low-cost artificial intelligence (AI) model from China could threaten the dominance of major AI companies like Nvidia. This caused Nvidia's market value to drop by $593 billion, marking the biggest one-day loss for any company in Wall Street history. A Chinese startup, DeepSeek, recently introduced a free AI assistant that uses less data and costs much less than current AI services. By Monday, this assistant surpassed the U.S.-based ChatGPT in downloads on Apple’s app store. This news caused the Nasdaq index, which has many tech stocks, to fall by 3.1%. Nvidia’s stock dropped nearly 17%, resulting in the largest single-day market capitalization loss for any Wall Street stock. Other major tech companies like Broadcom, Microsoft, and Alphabet (Google’s parent company) also saw significant stock price declines. The Philadelphia Semiconductor Index, which tracks chip-making companies, dropped 9.2%, its worst fall since March 2020. Companies like Marvell Technology, Broadcom, and others in the sector faced large losses. The impact of DeepSeek’s model raised concerns among investors and experts. They believe it could disrupt the global AI industry, reducing demand for expensive chips, power production, and data centers that AI companies currently rely on. AI has been a key factor in driving stock market growth over the past two years, attracting massive investments. Recently, former President Donald Trump announced a $500 billion private-sector plan to boost AI infrastructure, involving companies like OpenAI and Oracle. However, news of DeepSeek’s success shifted market sentiment, and related stocks like SoftBank and Oracle saw sharp declines. Trump called the rise of DeepSeek a "wakeup call" but viewed it as a potentially positive development. DeepSeek’s models are praised for their quality and cost-effectiveness. For example, its DeepSeek-R1 model is 20 to 50 times cheaper than OpenAI’s comparable model. Investors and experts are comparing this breakthrough to the "Sputnik moment," a reference to the Soviet Union's satellite launch that started the space race in the 1950s. Despite Monday's selloff, some investors see this as an opportunity to buy strong tech stocks at lower prices. Nvidia, for instance, remains a leader in providing chips for data centers, a key segment of the AI market. While Nvidia's shares have fallen this year, they have grown significantly over the past two years due to AI demand. In addition to tech stocks, shares of power utility companies also dropped, as expectations of rising energy demand for AI data centers started to fade. This reflects how deeply AI developments are influencing various sectors of the economy. Anish J Parashar Securities Analyst disclaimer Content is for educational purposes only For investment purposes consult your financial advisor.