Major US tech stocks like Nvidia, Microsoft and Tesla were set for a stunning $1 trillion rout on Monday as fears over an advanced Chinese artificial intelligence model triggered hysteria from Wall Street to Silicon Valley.
Shares of Nvidia plunged nearly 13% in early trading, erasing hundreds of billions in value as investors learned about DeepSeek — a China-based startup which has made waves in the industry after launching a free, open-source large-language model in December.
DeepSeek claims to have developed the advanced model in just two months at a cost of under $6 million — and without access to Nvidia’s best computer chips. That’s a stark contrast to the billions of dollars typically spent by Western tech giants on AI research and chips.
The model’s launch — referred to by tech investor Marc Andreessen as “AI’s Sputnik moment” — triggered a global meltdown that slammed AI firms and chipmakers.
It cast doubt over the thesis behind the industry’s entire supply chain and whether America actually has an advantage over its chief geopolitical rival.
“The DeepSeek announcement from China was nothing short of a financial Scud missile aimed at a US market that is much more fragile than most will admit,” said Island Capital Investments CEO Anthony Esposito, who noted that AI hype has driven markets to all-time highs.
“Unfortunately, I see more downside to come in the coming months,” Esposito added.
The so-called Magnificent 7 stocks — Apple, Nvidia, Google parent Alphabet, Tesla, Microsoft, Meta and Amazon — were hit hard in the selloff.
Alphabet fell more than 2%, while Microsoft, which has plunged billions of dollars into Sam Altman-led OpenAI, fell nearly 3%. Shares of Amazon, Elon Musk’s Tesla and Mark Zuckerberg’s Meta were also trading lower. Just one, Apple, was trading higher.
At the start of the trading day, stocks were on pace for more than $1 trillion in losses.
Meanwhile, DeepSeek surged to the top of the charts in Apple’s App Store as users scrambled to test out the chatbot.
The rapid progress of DeepSeek has sparked scrutiny over the immense sums being funneled into AI research by leading US firms, raising questions about efficiency and cost-effectiveness.
“DeepSeek clearly doesn’t have access to as much compute as US hyperscalers and somehow managed to develop a model that appears highly competitive,” said Srini Pajjuri, a semiconductor analyst at Raymond James, in a note on Monday.
The upheaval occurred just days after President Trump announced a $500 billion AI initiative known as Stargate.
The vast sum of money being invested in the project, which includes the involvement of top firms such as OpenAI, Oracle and SoftBank, is tied to an unprecedented buildout of data centers and computer chips necessary to power advanced AI.
Despite the market panic, Wedbush’s Dan Ives, a bullish tech industry analyst, said DeepSeek is a “minimal threat to the AI revolution thesis” and represents a “buying opportunity” for slumping stocks like Nvidia.
Powerful computer chips capable of powering futuristic AI remain a key differentiator that will keep Nvidia on top, he added.
“At the end of the day there is only one chip company in the world launching autonomous, robotics, and broader AI use cases and that is Nvidia,” Ives said in a note to clients.
“Launching a competitive LLM model for consumer use cases is one thing … launching broader AI infrastructure is a whole other ballgame and nothing with DeepSeek makes us believe anything different,” Ives wrote.
The possibility of a China-dominated AI industry also presents stark risks in terms of censorship, critics said.
DeepSeek’s chatbot says it is “designed to follow China’s laws and regulations, as well as socialist core values,” according to an output posted on X by the House’s China Select Committee.
The Chinese model also actively censored inquiries related to the Tiananmen Square massacre of 1989 as well as inquiries related to China’s leader Xi Jinping, social media screenshots showed.
DeepSeek claims that allegations of human rights abuses in China’s Xinjiang province are “unfounded and politically motivated.”
Other detractors expressed skepticism about the claims that DeepSeek cost just $6 million to train.
Scale AI CEO Alexandr Wang told CNBC that DeepSeek has access to far more advanced Nvidia-made AI chips — he estimated about 50,000 — than the firm can say due to the US government’s export limits on China for the technology.
