Nvidia Shares Plummet as Chinese AI App Sends Shockwaves Through Markets
US tech giant Nvidia experienced a significant drop in its stock value as a result of the rapid rise of a Chinese artificial intelligence (AI) application that has captured the attention of investors in the US and Europe. The app, named DeepSeek, has quickly become the most downloaded free app in the US, causing concern among tech companies associated with AI, including Nvidia, Microsoft, and Google, leading to a decline in their market values.
DeepSeek, developed in China, has garnered attention for being created at a fraction of the cost of its competitors, raising questions about the future of American AI dominance and the level of investments being made by US firms in this sector. The app announced a temporary registration limit due to "large-scale malicious attacks" on its software, adding to the intrigue surrounding its sudden popularity.
The emergence of DeepSeek has sparked discussions about the implications for the AI industry, particularly in the US, where companies like OpenAI have committed to investing $500 billion in AI infrastructure. President Donald Trump hailed this initiative as a significant step towards maintaining the US's position in technology innovation. DeepSeek's utilisation of the open-source DeepSeek-V3 model, developed at a fraction of the cost compared to its competitors, has raised eyebrows in the industry.
The Chinese AI developers have been adapting to restrictions on advanced chip technology imports by collaborating and exploring new methods, resulting in AI models that require less computing power and cost significantly less than before. DeepSeek's performance has been compared to that of leading models in tasks such as mathematics, coding, and natural language reasoning, prompting comparisons to historical technological milestones like "AI's Sputnik moment."
The impact of DeepSeek's rise was felt in stock markets across Europe and the US, with Nvidia's shares plummeting by 16.9% and other tech companies experiencing declines as well. The unexpected emergence of a low-cost Chinese AI alternative has raised concerns about the profitability of established rivals who have heavily invested in more expensive AI infrastructure.
While some analysts warn of potential challenges to American companies like OpenAI, others caution that issues faced by Chinese firms could hinder their progress. DeepSeek's announcement of a cyberattack further added to the intrigue surrounding the app, with the company temporarily limiting registrations to address the security breach.
DeepSeek, founded in 2023 by Liang Wenfeng in Hangzhou, China, has attracted attention for its innovative approach to AI development. Liang, a graduate in information and electronic engineering, also established a hedge fund that supported DeepSeek's growth. His strategic collection of Nvidia A100 chips, now restricted from export to China, played a crucial role in the app's creation, highlighting the significance of technology access in AI advancement.
In a recent interview, Liang expressed surprise at the sensitivity surrounding pricing in the AI industry, emphasising that DeepSeek's pricing strategy was based on cost calculations rather than market expectations. The company's founder's strategic vision and innovative use of available resources have positioned DeepSeek as a disruptive force in the AI landscape, challenging established norms and prompting a reevaluation of industry dynamics.
Nvidia's stock value plunges by over 16% following DeepSeek's surge in popularity
DeepSeek's cost-effective AI model raises questions about American AI dominance
Chinese AI developers adapt to chip technology restrictions, leading to innovative approaches in AI development
Source: BBC