What is DeepSeek, and Why is it Causing Nvidia and Other Stocks to Slump?

A Chinese AI company called DeepSeek is sending shockwaves in the U.S. and shaking up Wall Street with its innovative new technology, which some professionals say is a competitor of OpenAI’s ChatGPT. What’s surprising investors even more is the company’s extremely low development expenditure—just $6 million, according to Wedbush Securities analyst Dan Ives. That’s a stark contrast to the almost $1 trillion major U.S. companies like OpenAI and Google, which are foreseen to pour into AI over the next few years, as per Goldman Sachs.

On Monday, the launch of DeepSeek AI sent waves through the stock market, impacting the stakes of AI powerhouses like Nvidia, known for its advanced AI chips, and ASML, a fundamental chipmaker from the Netherlands. The concern lies in whether DeepSeek’s success could lessen the demand for costly chips and whether some AI-driven stocks, such as Meta and Microsoft, might be overrated.

The president of AI market research company Reflexivity said in an email:

DeepSeek has taken the market by storm by doing more with less. This shows that with AI the surprises will keep on coming in the next few years.

DeepSeek’s latest app launched shortly after President Trump unveiled Stargate, a $500 billion venture. He collaborated on this endeavour with OpenAI, Softbank, and Oracle and described it as “the future of technology” in the U.S. 

According to CNBC, AI-related stocks took a significant hit on Monday, with Nvidia’s shares declining 17% and wiping out $600 billion in value—a record-setting one-day loss for any business. Other chipmakers also struggled, with ASML down 6% and Broadcom dropping 17%.

Energy stocks were not spared, either. Investors are worried that DeepSeek’s technology might use less energy, decreasing the tech enterprise’s demand. GE Vernova, which makes wind and gas turbines, declined 21%, while electricity producer Vistra fell 28%.

The Nasdaq, heavily focused on tech, fell 3% (612 points), and the S&P 500 lost 1.5%. However, the Dow Jones Industrial Average bucked the trend, rising 0.7%.

Despite the sharp decline for the Nasdaq, it wasn’t its most harmful day in recent years. The greatest single-day drop since January 27, 2020, happened on March 16, 2020, when the index dropped over 12% as the COVID-19 pandemic rattled the economy.

What is Deepseek – The Chinese AI App Challenging OpenAI and Silicon Valley?

DeepSeek is a private Chinese firm established in July 2023 by Liang Wenfeng, a Zhejiang University graduate and successful hedge fund manager. According to MIT Technology Review, Liang used his hedge fund’s resources—worth approximately $8 billion—to start the company.

Before launching DeepSeek, Liang concentrated on using AI in investment approaches. He had also acquired an extensive supply of Nvidia A100 chips, cutting-edge tech now banned from export to China. The MIT publication revealed that these chips became the foundation of DeepSeek AI.

DeepSeek is an advanced AI application created in China, designed to handle complicated natural language processing (NLP) tasks with unparalleled efficiency. Unlike many AI platforms that focus solely on conversational AI, DeepSeek is an all-encompassing solution that integrates search capabilities, generative AI, and real-time data analytics.

The head of technology research at Melius Ben Reitzes informed investors that DeepSeek has gained real advancement in AI, including improved learning strategies and more efficient memory use. Nevertheless, he also raised suspicions about the mere number of chips involved in their functions.

Key Features of DeepSeek

Multimodal Capabilities

DeepSeek combines text, image, and video understanding, enabling more dynamic and versatile interactions.

Real-Time Data Integration

Unlike ChatGPT, which operates primarily on pre-trained data, DeepSeek AI has the capability to access real-time information from the web, making its responses more up-to-date.

Localized Focus

DeepSeek is tailored for the Chinese market but also aims to capture a global audience. Its algorithms are optimized for multilingual processing and cultural nuances, giving it an edge in non-English-speaking markets.

High Efficiency and Speed

DeepSeek claims to outperform traditional models in both computational efficiency and response time, thanks to its proprietary architecture.

Is DeepSeek AI Available in the U.S.?

This app is backed by substantial investments in AI research and development, positioning it as a key player in the global AI race. With China’s robust tech infrastructure and strong government support, DeepSeek is gaining momentum quickly.

DeepSeek AI app is available for free on the Apple App Store and the company’s website. As of Monday morning, it became the leading download on Apple’s store, though some users faced problems signing up.

On its Chinese website, DeepSeek attributed these issues to “large-scale malicious attacks” and said it had to temporarily limit new registrations. However, existing users can still log in without any difficulties, according to a report posted just after midnight on January 28 (China local time).

DeepSeek unleashed its latest AI model on January 20, sparking considerable interest on Wall Street and shaking up the AI industry.

Wedbush’s Ives wrote:

“Last week DeepSeek launched a model that rivals OpenAI’s ChatGPT and Meta’s Llama 3.1 and was #1 on Apple’s App Store over the weekend, DeepSeek built the model using reduced capability chips from Nvidia. which is impressive and thus has caused major agita for U.S. tech stocks with massive pressure on Nasdaq this morning.”

How is DeepSeek different from other AI apps? 

• DeepSeek AI is an open-source large language model that employs a method called “inference-time computing.” This suggests it only activates the parts of the model required for each query, which permits saving money and computing power.
  
• Some specialists have applauded DeepSeek, with well-known tech investor Marc Andreessen calling it “one of the most amazing breakthroughs” he’s seen. He also stated that as an open-source project, it’s a “profound gift to the world.”
  
• David Sacks, a venture tycoon and consultant on AI and cryptocurrency policy, also applauded DeepSeek AI, declaring it demonstrates how competitive the AI race is becoming.
  
• Nevertheless, analyst Dan Ives is doubtful that major U.S. companies will adopt it. He indicated that no large U.S. business would choose a Chinese startup like DeepSeek for its AI infrastructure, particularly since Nvidia is the top company providing the essential technology for AI and robotics.

Deepseek V/S ChatGPT

When comparing DeepSeek and OpenAI’s ChatGPT, several discrepancies stand out. Let’s find out some of these differences in detail.

Technology and Architecture

• DeepSeek: Uses a hybrid model that combines large language models (LLMs) with deep learning-powered search capabilities. This helps it to get real-time information and provide responses that are both contextually relevant and up-to-date.
• ChatGPT: Created on OpenAI’s GPT architecture, ChatGPT excels in generating human-like conversations. However, its dependence on pre-trained datasets restricts its capability to provide real-time information.

Target Market

• DeepSeek: Initially tailored for the Chinese market, it highlights cultural and linguistic nuances. Its developers have also revealed plans to grow globally, primarily in underserved markets.
• ChatGPT: OpenAI’s immediate focus has been on English-speaking users, although recent updates have enhanced its multilingual abilities.

Accessibility

• DeepSeek: Provides a range of services, from enterprise-level AI solutions to individual user tools, with adjustable pricing models that cater to various user commands.
• ChatGPT: Works mainly through subscription models (e.g., ChatGPT Plus) and API integrations for companies.

Real-Time Data

• DeepSeek: A considerable edge of DeepSeek AI is its real-time data integration, allowing users to receive the latest information directly through the app.
• ChatGPT: ChatGPT’s knowledge cutoff is fixed, making it less helpful for real-time updates unless incorporated with third-party plugins.

Regulatory Compliance

• DeepSeek: Designed to comply with China’s stringent data privacy and content regulations, guaranteeing smooth functioning in one of the world’s biggest internet markets.
• ChatGPT: Faces hindrances in entering markets with strict regulatory environments, including China.

Why is DeepSeek Impacting Nvidia and Other Stocks?

DeepSeek’s emergence has created ripples in the tech and investment sectors. Here are some reasons why:

Shift in Hardware Demand

Businesses developing AI applications like DeepSeek require enormous computational power. However, DeepSeek’s developers reportedly utilize domestically produced AI chips, decreasing reliance on Nvidia’s GPUs. This has raised concerns about Nvidia’s long-term growth in key markets like China.

Competitive Pressure on OpenAI and Silicon Valley

Investors are concerned that DeepSeek’s evolution could shift market dominance away from U.S.-based tech firms. OpenAI, for instance, faces the dual challenge of innovating quickly while retaining its position as a market leader.

Geopolitical Tensions

The peak of DeepSeek AI emphasizes China’s increasing self-reliance in AI and semiconductor development. This trend could worsen trade tensions and affect the global tech supply chain, impacting stock prices across the board.

Investor Sentiment

DeepSeek’s quick adoption has prompted analysts to reassess the valuations of tech firms that dominate the AI space. As a result, stocks like Nvidia have experienced short-term recessions.

DeepSeek Stock Symbol and Investment Prospects

Conclusion

Whether you are an investor, a tech enthusiast, or a casual observer, you must keep a close eye on DeepSeek AI. It’s not just competing ChatGPT and Silicon Valley—it’s redefining the rules of the game.

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