Chip Stocks Fall in Response to DeepSeek AI ModelsChip Stocks Fall in Response to DeepSeek AI Models

A new Chinese startup is shaking up Wall Street with claims that it can use cheaper chips and less data to create an AI model that is the equivalent of OpenAI, the company backed by Microsoft and venture capital firms. Partners will be closely watching its viability.

The Nasdaq dropped 3% Monday morning and the S&P 500 fell 1.7% in response to claims by China-based DeepSeek alleging that it can provide a cheaper alternative to America's current AI options. The company also saw its app surge to the top of the Apple App Store, with consumers expressing interest in the product's viability. Nvidia's shares tumbled 11% in response, while ASML, Arm, Broadcom and Micron also saw their stocks decline.

Andreessen-Horowitz's Marc Andreessen

At least one technology leader is alleging that this moment is revelatory concerning China's technological capabilities. “Deepseek R1 is AI’s Sputnik moment,” tech investor Marc Andreessen said on X/Twitter.

"Futures … are looking pretty bad this morning … hammered by the news that the Chinese start-up DeepSeek could run its latest AI model on less advanced chips – and could disrupt the US tech’s global dominance,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a research note on Monday.

What Is the DeepSeek Model R1?

The DeepSeek model, known as R1, is being released as open-source using a method similar to Meta's Llama model. That means anyone can build their version of R1 and tailor its functionality to their needs. It also is able to match, if not surpass, OpenAI's LLM in speed and strength, the company contends. DeepSeek also costs significantly less to develop, according to its website. The model it uses was trained in less than two months for only $6 million. That is significantly less than Meta's $60 million investment in Llama, or OpenAI's $6 billion in its model.

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DeepSeek's surging interest arrives less than a week after the Trump Administration announced Project Stargate. This $500 billion project intends to provide infrastructure for AI across the United States in partnership with OpenAI and Microsoft.

It also arrives at the same time that Nvidia CEO Jensen Huang stated that he is ramping up production of the Blackwell microchip, which is a more advanced model of the chip series controlling the vast majority of the AI semiconductor market. Nvidia has maintained a lead on AI-related chip development due to the product's advanced nature, to the point that the Biden Administration had to place export controls on the chips' sale in China so that weaker versions of its products were the only options available to tech companies there, Fortune reported.

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