US Stocks Plunge Amid Chinese AI Breakthrough by DeepSeek

US stock markets faced a sharp downturn on Monday after Chinese AI startup DeepSeek unveiled a groundbreaking AI model, R1, which operates at a fraction of the cost of existing US models. This announcement shook investor confidence in the US tech sector, sending the tech-heavy Nasdaq down 3.1%, while Nvidia lost nearly $600 billion in market value—the largest single-day loss ever recorded.

DeepSeek’s R1 model, developed with just $5.6 million in computing costs, challenges the dominance of US AI leaders like OpenAI, Google, and Meta, which spend billions on similar technologies. This development raises questions about the sustainability of US companies’ heavy investments in AI and their competitive edge.

Nvidia, a leading AI chip supplier, saw its stock plummet by 17%, while other major tech companies, including Meta and Alphabet, also experienced significant losses. Energy companies tied to AI data centres and cryptocurrencies followed suit, further amplifying market declines.

The announcement has drawn attention to undervalued Chinese tech companies, with analysts predicting increased investor interest in the sector. However, scepticism remains about whether DeepSeek’s claims will hold up and if this breakthrough signals a lasting shift in the AI landscape. The market volatility is expected to continue as US tech firms report earnings and address the implications of this disruptive innovation.