U.S. Tech Stocks Slide Amid New Competition from Deepseek AI
U.S. tech stocks plunged after Chinese company DeepSeek launched a low-cost AI model, sparking fears of heightened competition and rattling markets heavily invested in artificial intelligence.
The Nasdaq experienced a sharp drop on Monday as tech stocks faced heightened investor concerns following the debut of a new artificial intelligence model from Chinese company DeepSeek. The model, which reportedly offers performance on par with established U.S. AI systems but at a fraction of the cost, has ignited fears of increased competition in the AI sector.
DeepSeek’s latest offering was developed using less powerful and significantly cheaper chips, with the company claiming to have spent just $5.6 million on training the model. Over the weekend, the product climbed to the top spot on Apple’s App Store, signaling strong consumer interest. The news unsettled investors, leading to a 3% midday drop in the Nasdaq and ripple effects across the broader market. This comes as U.S. tech giants continue to pour billions into AI research and infrastructure.
The hardest-hit stocks included Nvidia, which fell 16%, and other semiconductor companies such as Broadcom and Advanced Micro Devices, down 17% and 6% respectively. Nvidia, a major supplier of chips used in AI systems, saw its valuation take a significant hit as questions arose about the sustainability of its high-margin AI-related revenues.
Tech behemoths also felt the pressure. Microsoft, a major investor in OpenAI, dropped 4%, while Alphabet slid 3%, and Amazon saw a 1% decline. Apple, notably less focused on AI investments, bucked the trend with a 3% gain. Meta showed slight resilience, inching upward ahead of its upcoming earnings report, which investors are watching closely for signals on the company’s AI strategy.
The broader market mirrored the Nasdaq’s decline, with the S&P 500 falling 1.7% and the Dow Jones Industrial Average losing 120 points. Analysts attributed the downturn to concerns over the disruptive potential of DeepSeek’s low-cost AI approach, which could challenge the dominance of established players like OpenAI and Meta.
Opinions among market analysts varied. Some expressed skepticism about DeepSeek’s claims of achieving competitive AI performance on a modest $5.6 million budget, calling the figure “unrealistically low.” Others saw the selloff as an overreaction and an opportunity to buy into undervalued tech stocks. Dan Ives of Wedbush Securities described the new model as “impressive” but emphasized that U.S. companies are playing a long-term game, leveraging their expansive ecosystems and infrastructure investments.
The U.S. response to intensifying global competition in AI has been notable. Last week, President Donald Trump announced the Stargate initiative, a $500 billion collaboration involving OpenAI, Oracle, and SoftBank to bolster AI infrastructure domestically. While the announcement underscored the scale of U.S. ambitions in AI, the emergence of DeepSeek has added a layer of uncertainty for investors navigating a rapidly evolving landscape.
As the week unfolds, market participants will be watching closely for earnings reports and further developments in the global AI race. For now, the tech sector finds itself at the intersection of innovation and heightened competition, with investors weighing the long-term implications of this latest disruption.