DeepSeek push wipes off $500 billion from AI bellweather Nvidia’s m-cap; stock tumbles 17%

US technology stocks crashed on Monday after Chinese AI startup DeepSeek raised doubts about America's leadership in the industry. This led to a drop in shares of several chipmakers, with Nvidia, one of the world’s most valuable companies, falling more than 15 per cent on Monday in early trade. 

Nvidia has now erased all of its gains since October 2 and is down 21 per cent in two trading sessions. According to experts, was the largest public company in the world last week, erasing one-fifth of its value in just two days. The DeepSeek crash erased nearly $1.5 trillion in Nvidia's stock market value.

As of 1:23 PM EST, Nvidia shares were trading 16.8% lower at $118.556 as against its previous close of $142.62. The rout in the stock market wiped off over $500 billion from Nvidia's market value on Monday. In Frankfurt, Nvidia stock traded lower by 12.53%. Nvidia’s stock had soared from less than $20 to more than $140 in less than two years before Monday’s drop.

Nvidia, which designs semiconductors for AI, and ASML, which manufactures machines to produce high-end chips, have both benefited from the boom in AI spending. But the latest AI model DeepSeek, released last week, is being viewed as a strong competitor to those from OpenAI and Meta Platforms Inc as it is cheaper to run and works on less advanced chips. 

DeepSeek last week launched a free assistant it says uses less data at a fraction of the cost of incumbent players' models, possibly marking a turning point in the level of investment needed for AI. According to Reuters, the DeepSeek-V3 model was developed by spending $5.6 million, significantly lower than the amounts used by the American tech giants. The open-sourced product has moved to the top in Apple Inc.'s App Store rankings.

US Stocks Crash

Wall Street's superstars tumbled on Monday after the China competitor threatened to upend the AI frenzy that has gripped Silicon Valley. The S&P 500 was down 1.6 per cent in morning trading, heading for its worst day in over a month. Big Tech stocks took some of the heaviest losses, with Nvidia down 16 per cent, and they dragged the Nasdaq composite down four per cent.

Stocks outside of AI-related industries held up much better, though, and the Dow Jones Industrial Average was down by just 65 points or 0.1 per cent. The Dow has much less of an emphasis on tech than the S&P 500 and Nasdaq. Microsoft, Meta and Apple are slated to post their quarterly earnings this week.

US tech giants drag Nasdaq

The tech-heavy Nasdaq Composite slumped four per cent on Monday over the DeepSeek crash. Nvidia led the tech stocks crash with a 17 per cent slump. The CBOE Volatility Index, known as Wall Street's fear gauge, hit its highest level since December 20, surging 27 per cent. Prices of exchange-traded funds that offer leveraged exposure to the chipmaker also plunged.

What exactly is DeepSeek?

DeepSeek was founded in 2023 by Liang Wenfeng, the chief of the AI-driven quant hedge fund High-Flyer. The company develops open-source AI models, meaning the developer community at large can inspect and improve the software. Its mobile app surged to the top of the iPhone download charts in the US after its release in early January.

The app distinguishes itself from other chatbots like OpenAI’s ChatGPT by articulating its reasoning before responding to a prompt. The company claims its R1 release offers performance on par with OpenAI’s latest and has granted licenses for individuals interested in developing chatbots using the technology to build on it.

(With inputs from agencies)

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