China's Deepseek R1 sparks massive shake-up in AI markets
The stock prices of the largest American companies involved in the development of artificial intelligence and its infrastructure plummeted on Monday, due to the presentation of a cheaper and more efficient Chinese AI model, DeepSeek R1.
Among the companies affected by the declines is the largest manufacturer of chips used for AI training, NVIDIA, whose shares fell by over 12% within an hour of the market opening. Smaller declines were recorded by Microsoft, which owns the American AI leader OpenAI, as well as Meta and Google's parent company, Alphabet. Significant price drops were also noted by energy companies and those involved in AI architecture and data centre operations used for AI development. The stock of one of these companies, Vertiv, dropped by 25%.
Artificial Intelligence. China steps into the game
According to estimates from Dow Jones Market Data cited by the "Wall Street Journal," American publicly traded companies lost over $1 trillion in market value.
Monday's declines are a result of the presentation of the new Chinese artificial intelligence model DeepSeek R1, which matches or surpasses American competitors from OpenAI, Meta, Google, or xAI, despite claims from the creators of the Chinese model that it required significantly fewer resources and was developed without access to the most advanced processors.
As noted by the "Washington Post," the emergence of DeepSeek called into question the previous AI development model, which was based on massive investments in highly energy-intensive data centres and the purchase of the most advanced processors.
Investor Marc Andreesen, influential in the new U.S. administration, described the emergence of DeepSeek as a new "Sputnik moment" and "one of the most amazing breakthroughs he's seen," comparing the situation to the USSR overtaking the US in the space race during the Cold War.
Here's who could lose the most
- Movements in the American market primarily indicate the consequences of excessive concentration, a problem the U.S. stock market has been dealing with for some time. During the AI boom in 2024, the market became heavily dependent on a very limited number of companies, with the most obvious example being NVIDIA. Its results could elevate the market to new heights, but such a situation is a double-edged sword. The market can experience excessive declines caused solely by a change in sentiment towards a single company. Today we see how much concentration around AI companies can affect the broader market - comments Tymoteusz Turski, stock market analyst at XTB, on Monday's results.
- American companies will not abandon AI development simply because of an alternative technology emerging from China. However, what we might see now are investor decisions related to the justification of such high spending on artificial intelligence. In this respect, companies that do not directly develop AI but provide expensive infrastructure for its training could lose the most. Their valuations have so far been based on the dogma "you can't produce this cheaper," so their clients accepted high budgets for spending related to artificial intelligence - adds the expert.
- It is worth remembering, however, that DeepSeek is not a groundbreaking technology, but rather an improvement of something previously known. Therefore, it cannot be excluded that a new, truly groundbreaking step in AI technology will appear on the horizon again - indicates Tymoteusz Turski.
