A young Chinese AI startup, DeepSeek, caused a major sell-off in U.S. tech stocks on Monday. Its groundbreaking, cost-effective AI models raised concerns about the billions spent by U.S. tech giants on artificial intelligence.

Dado Ruvic | Reuters

Shaking Investor Confidence

DeepSeek's emergence disrupted the bullish momentum U.S. markets enjoyed over the past two years, casting doubt on Nvidia's dominance and even impacting shares of power producers poised to benefit from AI-driven data center demand.

The Catalyst: DeepSeek's Revolutionary Model

Founded in May 2023 by Liang Wenfeng, DeepSeek unveiled its open-source large language model in December. Developed in just two months for under $6 million, the model challenged the narrative of costly AI development.

On January 20, DeepSeek released R1, a reasoning model outperforming OpenAI’s latest in various third-party tests. The R1 model enhances response accuracy by generating a "chain of thought" before finalizing answers, setting it apart from competitors.

Endorsements Fuel the Buzz

Scale AI CEO Alexandr Wang highlighted DeepSeek’s competitiveness during the World Economic Forum, revealing the lab possesses 50,000 Nvidia H100 chips despite U.S. export restrictions. His remarks sent Nvidia shares sliding 3% by Friday.

Venture capital leaders like Marc Andreessen and Chamath Palihapitiya further amplified the excitement, praising R1's breakthrough in step-by-step reasoning without massive supervised datasets.

DeepSeek Tops App Charts

By the weekend, DeepSeek’s app surged to the top of Apple’s U.S. App Store charts, surpassing OpenAI’s ChatGPT. This signaled a significant threat to premium models and heightened concerns among investors.

Wall Street Reacts

The Nasdaq Composite plunged over 3% on Monday, with Nvidia suffering a 16.9% drop—the chipmaker's worst day since 2020. Other tech and chip stocks followed suit as the market reeled from DeepSeek's rapid ascent.

DeepSeek’s disruptive entry has redefined the AI landscape, leaving investors questioning the long-term value of established U.S. tech giants in this competitive space.