DeepSeek, a Chinese AI Company, Crashes the U.S. Tech Stock Market
Samantha Rubin, reporting for CNBC:
Nvidia lost close to $600 billion in market cap on Monday, the biggest drop for any company on a single day in U.S. history.
The chipmaker’s stock price plummeted 17% to close at $118.58. It was Nvidia’s worst day on the market since March 16, 2020, which was early in the Covid pandemic. After Nvidia surpassed Apple last week to become the most valuable publicly traded company, the stock’s drop Monday led a 3.1% slide in the tech-heavy Nasdaq.
The sell-off was sparked by concerns that Chinese artificial intelligence lab DeepSeek is presenting increased competition in the global AI battle. In late December, DeepSeek unveiled a free, open-source large language model that it said took only two months and less than $6 million to build, using reduced-capability chips from Nvidia called H800s.
Nvidia’s graphics processing units, or GPUs, dominate the market for AI data center chips in the U.S., with tech giants such as Alphabet, Meta, and Amazon spending billions of dollars on the processors to train and run their AI models.
DeepSeek’s mobile app launched earlier this month and quickly rose to the No. 1 place on the App Store in the United States. As John Gruber writes at Daring Fireball, it’s telling that this metric led to one of the biggest tech market crashes this decade. But, perhaps noticeably, Apple is not on the list of tech stocks that dropped on Monday; its stock is up by over 7 percent. I think the reason why is quite comical yet probably true: Wall Street doesn’t see Apple as an AI company. It wouldn’t be wrong — Apple Intelligence is a buggy beta mess making headlines for producing inaccurate summaries of important news notifications. I digress.
The panic over DeepSeek is largely psychotic on the tech “analyst” crowd’s part. Silicon Valley tech bros always panic about this kind of thing. As Casey Newton writes for his Platformer newsletter, the two main camps in the AI wars — accelerationists (e/acc) and effective altruists (doomers) — each have something to gain from causing turmoil. Venture capitalists often throw billions of dollars into various other industries that would benefit from a full-on trade war (or armed conflict) with China, and AI doomers are in it to sell solutions to halt the production of new AI. So when the stock market crashes, it’s probably not because everyone will die or Sputnik AI just happened.
I’m minimally concerned about DeepSeek’s impact on the American AI industry. The company’s latest model, R1, is free, open-source software and outperforms ChatGPT-4o, OpenAI’s finest. But that’s not a reason to worry, per se, because competition is always good and only pushes more innovation in capitalist countries. This isn’t a war yet, and I highly doubt it will turn into one anytime soon because China is significantly resource-limited. Nvidia’s stock went for a ride on Monday because Nvidia chips aren’t allowed anywhere near China per the Biden administration’s rules on chip exports — President Trump hasn’t rolled them back despite Nvidia asking him to — and investors who don’t know a thing about how neural processors work thought China did something incredible.
China, in fact, didn’t do anything worthy of awe. It did what it’s best at: propagandizing Americans. This stock market crash was Beijing’s plan all along. It worked for years post-ChatGPT to build a great large language model that would run on its own cheap chips and wow foreigners, causing them to panic-dump Nvidia stock long enough for the market to die and a new president to lift export restrictions in an attempt to salvage the economy. This is still a possibility because Trump is an oligarch-loving moron who knows less about AI chips than a second grader and would do anything to please billionaire donors, but the goal isn’t to outdo the United States in AI just yet. ChatGPT o3-mini, OpenAI’s next model rumored to be the best yet, isn’t even out until February at the earliest.
DeepSeek doesn’t have any juice. It can’t answer simple questions about President Xi Jinping of China or the Tiananmen Square massacre, and neither does it even allow sign-ups anymore because the Chinese state propagandists funding the project don’t know how to keep up with the massive influx of new users. DeepSeek’s models aren’t AI models — they’re state-funded media made to grab attention and headlines. (I guess it’s working.) DeepSeek doesn’t have to worry about pleasing investors or paying employees because the Chinese state takes care of the bill. It’s not a real company doing genuine business. I’m unsurprised Wall Street hasn’t caught on because only the world’s delinquents belong there, but it’s painfully obvious: no model of this caliber can run for free. Nothing is free in the world except when it’s being subsidized by one of the largest spreaders of propaganda in the world.
I’m sure the stock market will bounce back in a few days. But rich oligarchs, fearmongers, and Chinese propagandists will continue to have an uncanny amount of influence on our politics in the coming years. This is just Act 1 of that narrative.