How DeepSeek’s AI disruption sent $593 billion shockwave to Nvidia, rattled global stock markets

DeepSeek AI, a low-cost Chinese artificial intelligence (AI) start-up from Hangzhou, rattled United States tech stocks and the global stock markets last week, tanking the value of chip maker Nvidia by as much as $593 billion overnight—a record 17 per cent one-day loss for the Silicon Valley golden child. According to LSEG data, it is a record one-day market cap loss for a Wall Street stock in history. 

The AI's disruption has hit Jensen Huang's Nvidia the hardest, but the scenario is unpleasant across the board — the S&P 500 dropped, and the Nasdaq slumped over 3 per cent. Fears over the costly US endeavours in AI tech against the reportedly comparable Chinese alternative—available on open source and made at a fraction of the cost—was what largely dragged the markets.

Nvidia Stock Price

Notably, till market close on Friday (January 31), Nvidia stock was still taking hits from DeepSeek and US President Donald Trump's announcements related to the chip industry. Nvidia shares closed at $120 apiece — just above its 200-day moving average (MVA) and some 20 per cent below its record high, according to a Bloomberg report.

We take a look at how DeepSeek's AI disruption sent a $593 billion shockwave to Nvidia, dragged global tech stocks and rattled stock markets around the world.

What is DeepSeek AI?

According to a Reuters report, Chinese start-up DeepSeek launched a free AI assistant last week, claiming that it uses less data at a fraction of the cost of other existing alternatives, such as OpenAI's ChatGPT, Google's Gemini and others.

By January 27, DeepSeek AI had overtaken ChatGPT in terms of downloads from the US iOS Apple's app store, and also surpassed ChatGPT in several regions, including the UK, Australia, Canada, China and Singapore.

Is China's DeepSeek a Threat to Big Tech?

DeepSeek's models, including DeepSeek-V3 and DeepSeek-R1 are developed by Hangzhou-based startup, majority-owned by Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer. The company shot to fame last month after various benchmarks showed that its V3 large language model (LLM) outperformed those of many popular US tech giants, despite being developed at a much lower cost.

DeepSeek's R1 language model, which mimics aspects of human reasoning, also matched and outperformed OpenAI's latest o1 model in various benchmarks. 

Further, in a paper last month, DeepSeek researchers stated that the V3 model leveraged the Nvidia H800 chips for training and incurred a cost of less than $6 million, a miserly sum compared to the billions that AI giants like Microsoft, Meta, and OpenAI have committed to spend this year alone.

DeepSeek has also raised questions about the effectiveness of US export curbs on advanced AI chips. Its recent advancement could lead to a decline in the market share of top AI companies like OpenAI, Microsoft, Google and Meta, while DeepSeek's pricing may push down the pricing of AI giants.

How Did Tech Stocks React? Nvidia, Broadcom, Microsoft and Google Tumbled

On January 27, the US tech-heavy Nasdaq slipped 3.1 per cent, largely due to Nvidia's drag, which lost a record 17 per cent overnight, followed by chip maker Broadcom Inc, which finished down 17.4 per cent, ChatGPT backer Microsoft down 2.1 per cent, and Google parent Alphabet down 4.2 per cent, as per the Reuters report.

The Philadelphia semiconductor index tumbled 9.2 per cent (its biggest percentage drop since March 2020), and Nasdaq's biggest fall was seen by Marvell Technology, which tumbled 19.1 per cent. 

US equity declines followed a selloff that started in Asia, with Japan's SoftBank Group finishing down 8.3 per cent and moved through Europe, where ASML fell 7 per cent.

Among other stocks, Vertiv Holdings, which builds data centre infrastructure, slumped 29.9 per cent on January 27; Vistra shares fell 28.3 per cent, Constellation Energy shares fell 20.8 per cent, and NRG Energy lost 13.2 per cent. The report noted that power companies saw sell-offs as many investors had recently flocked in hopes of a massive demand surge from power-hungry data centres needed for AI.

Expert View: Does DeepSeek Threaten Magnificent Seven?

While most analysts feel that DeepSeek will push a rethink in the larger AI space, especially in terms of cost-effectiveness and creative use of available, technologies; market watchers feel the Magnificent Seven — despite the January 27 drubbing, are likely to keep their crowns.

Investopedia defines the Magnificent Seven (or Mag-7) as “a group of high-performing and influential companies in the US stock market”. The elite group comprises Big Tech players Google-parent Alphabet, Jeff Bezos' Amazon, iPhone maker Apple, Mark Zuckerberg's Meta Platforms, software giant Microsoft, Nvidia, and Elon Musk's Tesla.

Jefferies has said that DeepSeek, which has developed an open-source LLM that matches the performance of GPT-4o using a fraction of computing power, “would prompt the AI industry to refocus on return on investment (ROI) adding that companies re-evaluating computing power needs could cause 2026 AI capex to fall (or not grow).”

According to the Jefferies analysis report, titled ‘The Fear Created by China's DeepSeek’, at a training cost of only $5.6 million, DeepSeek costs 10 per cent less than Meta's Llama. It added that the company has claimed the V3's performance exceeded that of Llama 3.1 and matched matching GPT4-o.

“It is an open-source model, available at Hugging Face. Therefore, other AI developers could use it. We believe V3 will allow AI developers to develop applications at a much lower cost. However, DS is not focused on commercialisation, and has not accelerated any AI commercialisation,” it added.

Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, told Reuters that if DeepSeek's claims are true, it “is the proverbial ‘better mousetrap’ that could disrupt the entire AI narrative that has helped drive the markets over the last two years”. He added, “It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centers.”

US President Donald Trump also weighed in on the discussion, saying on January 27 that DeepSeek should be a “wakeup call” and could be a positive development.

However, market-wise a Bloomberg Markets Live Pulse survey of 260 respondents showed that 88 per cent felt the hyped debut — which wiped $784 billion from the S&P 500 in a single day — will have little to no impact on the shares of the US technology behemoths in coming weeks.

“Dethroning the Magnificent Seven won’t be easy, as the companies have been able to build significant competitive moats around their businesses,” Steve Sosnick, chief strategist at Interactive Brokers LLC told Bloomberg. He added that the panicked selloff reminded Wall Street “that even disruptors are at risk of being disrupted. If companies are earning outsized profits, it is inevitable that competitors will arise in hopes of reaping some of those gains.”

What did US stock market investors buy on Jan 27?

The Reuters report noted that most outflows from tech stocks moved towards safe-haven government bonds and currencies — the benchmark US Treasury 10-year yield fell to 4.53 per cent, while in currencies, Japan's Yen and the Swiss Franc rallied against the US Dollar.

“The increased volatility in tech stocks will prompt banks to adjust their risk management, potentially holding fewer shares or managing positions more carefully as clients unwind their holdings,” one trading executive told Reuters.

As per the Bloomberg survey, investors piled into value stocks, encompassing all from financial companies, healthcare and industrials stock. Thus, the Vanguard S&P 500 Value Index Fund ETF, which houses bellwethers like Johnson & Johnson, Procter & Gamble Co. and Coca-Cola Co. saw big boost.

What Did rival AI ChatGPT's Sam Altman said about DeepSeek?

OpenAI founder Sam Altman reacted to DeepSeek's rapid rise, calling it “invigorating” to have a new competitor. Altman has also hinted at potential new releases by OpenAI to counter DeepSeek's R1 reasoning model.

In a post thread on X, Altman wrote, “deepseek's r1 is an impressive model, particularly around what they're able to deliver for the price. we will obviously deliver much better models and also it's legit invigorating to have a new competitor! we will pull up some releases [sic].”

“but mostly we are excited to continue to execute on our research roadmap and believe more compute is more important now than ever before to succeed at our mission. the world is going to want to use a LOT of ai, and really be quite amazed by the next gen models coming [sic],” Sam Altman added.

(This copy has been updated to add more info)