Chinese DeepSeek: Is It a New Threat to AI Giants?: The Chinese startup DeepSeek, founded just a year ago,
Thanks to its advanced capabilities, it has managed to grab global attention, particularly from Silicon Valley.
The company has launched an AI model that rivals the world’s best chatbots but at a significantly lower cost,
creating a groundbreaking shift in the competitive landscape of the artificial intelligence sector.
This accomplishment has positioned DeepSeek as a central topic in tech circles.
It introduces a new vision that threatens the dominance of major companies
and pushes the industry to consider cost efficiency as a primary factor for the future.
Content
DeepSeek’s Global Impact
Market Reaction
Wall Street Indices
Market Movements
Impact on Cryptocurrencies
What is DeepSeek?
DeepSeek, founded in 2023 by Liang Wenfeng, the head of the quantitative hedge fund High-Flyer,
focuses on developing open-source AI models.
These models aim to provide advanced technology at reduced costs,
enabling developers and programmers to use these tools to enhance their models.
In January 2024, the company launched its smartphone application,
which quickly gained massive traction and became one
of the most downloaded apps on iPhones in the U.S.
The app stands out for its unique ability to explain the reasoning behind its answers,
giving it a competitive edge over rivals like ChatGPT by OpenAI.
DeepSeek in the Chinese Tech Landscape
DeepSeek competes directly with Chinese tech giants like Alibaba and Baidu,
which invests heavily in AI projects.
However, DeepSeek stands out due to its unique approach of offering open-source AI models.
This strategy has fostered innovation and attracted massive numbers of users quickly, giving it a competitive advantage.
Additionally, the low-cost models developed by DeepSeek have significantly
reduced development expenses for AI developers in China.
This has sparked fierce local market competition and even price wars among companies,
forcing major corporations to reevaluate their strategies.
The Global Impact of DeepSeek’s Model on the Market
The success of DeepSeek has not been confined to China but has extended to create a tangible global impact.
It has compelled leading companies such as OpenAI and Meta
To maintain their competitive edge, consider lowering the prices of their services and products.
This shift has raised fundamental questions about the viability of the massive spending undertaken by American tech companies,
which invest substantial budgets in developing AI infrastructure.
DeepSeek’s model has demonstrated that innovation can be achieved at lower costs and with greater efficiency,
presenting a clear challenge to traditional business models that rely on high expenditures.
This success pressures global companies to reconsider their strategies and adapt to DeepSeek’s new competitive landscape.
The sharp decline in NVIDIA’s stock triggered a wave of negative repercussions across broader markets.
Due to the company’s significant weighting in major indices like the S&P 500 and the Nasdaq 100,
these indices fell by 2.3% and 3.6%, respectively, resulting in substantial losses for other technology stocks.
Analysts suggest that DeepSeek’s low-cost strategy has raised serious
questions about the traditional models relied upon by major U.S. tech firms.
While these companies have spent billions developing AI models requiring massive and expensive infrastructure,
DeepSeek has proven that groundbreaking innovation can be achieved with significantly lower costs,
posing a direct challenge to these established models.
Market Reaction and Future Investments
Major tech companies have announced plans to confront the challenge in response to this shift. For example:
Meta announced its intention to increase spending on AI projects by up to 50% this year,
bringing its total investment to approximately $65 billion.
OpenAI, SoftBank, and Oracle launched a joint $100 billion project to build advanced AI data centers and infrastructure.
AI Strikes a Heavy Blow to Wall Street Indices
Wall Street began its week with significant losses, driven by concerns over the low-cost
AI model developed by Chinese startup DeepSeek and its potential impact on valuations of American tech stocks.
These companies, historically key market growth drivers, faced intense pressure due to this groundbreaking innovation.
Globally, markets from New York to London and Tokyo experienced sharp declines:
- The S&P 500 dropped by 1.7%.
- The Nasdaq 100 fell by 3.2%.
- The semiconductor index recorded a record decline of 9.5%, the largest drop since March 2020.
NVIDIA, the symbol of the AI boom, saw its shares plummet by 17%,
wiping out approximately $560 billion in market value—the largest single-day market loss for any company in U.S. history.
Market Movements: The Flight to Safety
As major tech stocks collapsed, investors sought refuge in safe assets to avoid further losses. Key shifts included:
- An increase in demand for commodities and healthcare stocks.
- Higher purchases of Treasury bonds are driving yields to their lowest levels this year.
- Gains for safe-haven currencies such as the Japanese yen and Swiss franc.
- A sharp decline in cryptocurrencies, with Bitcoin dropping by 3.9% to $100,537.
DeepSeek’s Impact on Cryptocurrencies
The success of DeepSeek’s open-source platform has triggered waves of concern in global markets,
particularly in the AI sector.
This success has highlighted the overvaluation of U.S. tech companies
and raised questions about the sustainability of such investments,
negatively impacting investor appetite for high-risk assets, including cryptocurrencies.
Additionally, the widespread market anxiety has dampened the positive effects of any potential regulatory support,
such as the executive order issued by former U.S. President Donald Trump to promote digital assets.
The close relationship between cryptocurrency performance and major tech stocks has intensified the pressure on Bitcoin.
Digital assets have faced significant pressure in the wake of disruptions caused by DeepSeek,
raising concerns about the future of cryptocurrencies, especially following last year’s significant gains.
Bitcoin experienced sharp fluctuations, stabilizing at $101,800 on Tuesday morning
(Singapore time) after a 3% drop in the previous session. Other cryptocurrencies,
such as Ethereum and Solana, faced even steeper losses, impacted by the sharp decline in the Nasdaq 100 index.
DeepSeek’s Impact Extends to Japanese Stocks
The turmoil caused by DeepSeek did not stop at cryptocurrencies but extended to Japanese stock futures.
The Nikkei 225 futures dropped to 39,060 points on the Chicago Exchange,
compared to a closing price of 39,565 points, as the yen rose by 1.5% against the dollar, further pressuring Japanese exporters.
Ryota Otsuka, a strategist at Toyo Securities, remarked:
“The Japanese market is expected to start weak,
but it may recover after digesting the impact of DeepSeek and the stronger yen.”
Conclusion
The rise of DeepSeek signifies a pivotal moment in the AI industry,
forcing major tech companies to rethink their investment strategies and technological approaches.
It highlights a new competitive landscape where innovation,
efficiency, and cost-effectiveness dominate.
Far from being just another startup, DeepSeek represents a transformative force reshaping global AI competition.
Chinese DeepSeek: Is It a New Threat to AI Giants?: