Nvidia shares sink as Chinese AI app DeepSeek spooks markets

Shares of U.S. tech giant Nvidia plummeted by more than a sixth on Monday, following a surge in popularity of a Chinese artificial intelligence (AI) application that sparked panic among investors in the U.S. and Europe. The Chinese AI chatbot, called DeepSeek, is reportedly developed at a much lower cost than its competitors and quickly became the top free app download in the U.S. after its release last week.

With the sudden rise of DeepSeek, the market value of AI-related chip giant Nvidia, as well as other tech companies such as Microsoft and Google, all fell on Monday. Meanwhile, DeepSeek said on Monday that it would temporarily restrict registration due to its software suffering a "large-scale malicious attack."

The fact that the DeepSeek chatbot was reportedly developed at a much lower cost than its competitors has raised questions about the future dominance of U.S. artificial intelligence and the scale of investment planned by U.S. companies. Last week, companies like OpenAI pledged to invest $500 billion (£400 billion) in AI infrastructure in the U.S. U.S. President Donald Trump called it "the largest AI infrastructure project in history to date" and would help keep "the future of technology" in the U.S.

DeepSeek is powered by the open-source DeepSeek-V3 model, which its researchers claim cost around $6 million to train, significantly less than the billions of dollars invested by its competitors. However, this claim has been questioned by others in the AI field. The researchers stated that they used existing technology and open-source code that can be used, modified, or distributed freely by anyone. The emergence of DeepSeek comes at a time when the U.S. is restricting the sale of advanced chip technology used to power AI to China.

To continue working without a steady supply of advanced chip imports, Chinese AI developers are sharing their work with each other and experimenting with new technical approaches. This has made the computing power needed for AI models much lower than before and greatly reduced costs, which has the potential to disrupt the entire industry. After the release of DeepSeek-R1 earlier this month, the company claimed its "performance is on par" with one of OpenAI's latest models in tasks such as mathematics, coding, and natural language reasoning.

Silicon Valley venture capitalist and Trump advisor Marc Andreessen described DeepSeek-R1 as "AI's Sputnik moment," referring to the Soviet Union's launch of a satellite in 1957. At that time, the U.S. was considered to have been caught off guard by its competitor's technological achievement. The sudden popularity of DeepSeek has shocked stock markets in Europe and the U.S. In the U.S., AI chip maker Nvidia closed down 16.9% on Monday, while its competitor Broadcom fell 17.4%. Other tech companies also fell, with Microsoft down 2.14% and Google's parent company Alphabet down more than 4%.

In Europe, Dutch chip equipment maker ASML closed down more than 7% on Monday, while shares in Siemens Energy, which produces AI-related hardware, plummeted by a fifth. "The idea of a low-cost Chinese version is not necessarily the most cutting-edge, so it took the market a bit by surprise," said Fiona Cincotta, senior market analyst at City Index. "So if you suddenly get this low-cost AI model, then that raises concerns about the profits of competitors, especially given that they've already invested heavily in more expensive AI infrastructure."

Singapore-based tech equity advisor Vey-Sern Ling told the BBC that this "could disrupt the investment case for the entire AI supply chain." However, Wall Street banking giant Citi warned that while DeepSeek may challenge the dominance of U.S. companies like OpenAI, problems faced by Chinese companies may hinder their development. "We estimate that U.S. access to more advanced chips is an advantage in an inevitably more restrictive environment," analysts said in a report.

Meanwhile, DeepSeek said on Monday that it had become the victim of a cyberattack. "Due to the large scale of malicious attacks on DeepSeek services, we are temporarily restricting registration to ensure that services continue to operate," the company said in a statement. "Existing users can log in as usual. Thank you for your understanding and support."

DeepSeek was founded in 2023 in Hangzhou, Zhejiang by Liang Wenfeng. The 40-year-old information and electronic engineering graduate also founded the hedge fund that supports DeepSeek. He reportedly stockpiled a large number of Nvidia A100 chips, which are now banned from export to China. Experts believe that this batch of chips, some estimates put it at 50,000, enabled him to launch DeepSeek by pairing these chips with cheaper, lower-end chips that can still be imported. Mr. Liang recently appeared at a meeting between Chinese Premier Li Qiang and industry experts.

In an interview with the Chinese Academy of Sciences in July 2024, Mr. Liang said he was surprised by the reaction to previous versions of the AI model. "We didn't expect pricing to be so sensitive," he said. "We just followed our own pace, calculated the costs, and set the price accordingly."