In brief
DeepSeek's budget-friendly AI model rattles US markets, prompting discussions about future innovation and the tech race with China.
US tech stocks showed resilience on Tuesday following an initial plummet caused by the emergence of the DeepSeek AI application, developed in China. Shares of major chipmaker Nvidia surged by 8.8% after a disheartening drop of approximately 17% on Monday. Observers noted that the earlier selloff may have overstated the significance of DeepSeek's competitive pricing, which claims to deliver AI capabilities at a fraction of the cost compared to US counterparts.The swift rise of DeepSeek, which quickly became the most downloaded free app in the United States, has led to inquiries about the prospects of America's AI preeminence and the degree to which US firms are willing to invest in AI technologies. President Donald Trump characterized the upheaval as a "wake-up call" for the tech landscape, while asserting that lower costs for AI solutions could ultimately benefit the US economy. He expressed solid confidence in America's ongoing leadership in the AI domain.This newfound competition from DeepSeek comes amidst mounting tensions regarding a tech rivalry with China. Chinese companies have collaborated on innovative AI techniques, allowing them to create models that require significantly less computational power and costs. Janet Mui, RBC Brewin Dolphin’s head of market analysis, indicated that while initial reactions to groundbreaking developments can lead to sell-offs, long-term beneficiaries of cost-effective AI tools could include prominent companies like Apple.Despite the uncertainties surrounding DeepSeek's capabilities, some industry experts believe that its affordability could stimulate wider AI adoption across various sectors. Observations emerged from notable figures like OpenAI’s Sam Altman, who acknowledged DeepSeek’s impressive performance relative to cost. However, skepticism remains, with notable personalities such as Elon Musk questioning the legitimacy of DeepSeek's claims.The positive market adjustments in New York included gains of 0.3% in the Dow Jones Industrial Average, nearly 1% in the S&P 500, and 2% in the Nasdaq. Meanwhile, Japan's Nikkei 225 index faced a setback of 1.4%, impacted by concerns over sinking AI-affiliated company stocks, amid wider Asian market closures for the Lunar New Year festivities.The founder of DeepSeek, Liang Wenfeng, noted his surprise at the feature sensitivity concerning pricing in a recent interview. While the development has prompted ambitious expectations in the tech sector, critical privacy, security, and performance questions regarding its software capabilities remain prominent.
