US Tech Stocks Stabilize After DeepSeek AI App Disrupts Market
US Tech Stocks Stabilize After DeepSeek AI App Disrupts Market
US tech stocks held steady on Tuesday after experiencing a sharp decline on Monday, triggered by the unexpected rise of the Chinese-made artificial intelligence (AI) app, DeepSeek.
Shares of chip giant Nvidia, which had fallen sharply on Monday, rebounded by 8.8% as experts suggested the AI market selloff may have been an overreaction. Investors were quick to adjust their positions after DeepSeek claimed its AI model was developed at a fraction of the cost of its competitors' offerings.
The news sparked concerns over the future of America's AI dominance and raised questions about the scale of investments US companies are planning. US President Donald Trump described the situation as "a wake-up call" for the tech industry, while also suggesting that the development could ultimately be beneficial for the US economy. He remarked that if AI models could be produced more cheaply while delivering the same results, it would be a positive outcome for the country.
Trump downplayed concerns, emphasizing that the US would remain a key player in the AI field. The surge of optimism around AI investments has fueled much of the US stock market's growth over the past two years, prompting fears of a potential market bubble.
DeepSeek, launched just a week ago, quickly became the most downloaded free app in the US. Its rise comes amid ongoing tensions between the US and China over AI technology, with the US restricting the export of advanced AI chips to China.
Chinese AI developers, facing limited access to these chips, have shared research and explored alternative approaches that demand less computational power. This has led to the creation of AI models that are significantly cheaper to produce, challenging industry norms and threatening to disrupt the market.
Nvidia, the leading provider of advanced chips used in many AI applications, was hit hardest by the market selloff. Its share price dropped 17% on Monday, erasing nearly $600 billion from its market value.
Analysts, including Janet Mui of RBC Brewin Dolphin, explained that investors typically respond with caution to groundbreaking developments due to uncertainty. However, she noted that the cheaper AI models could benefit tech giants such as Apple and other firms, who have faced scrutiny over their high AI investments.
After the initial shock, US stock markets stabilized on Tuesday. The Dow Jones Industrial Average rose 0.3%, the S&P 500 gained nearly 1%, and the Nasdaq saw a 2% increase. In the UK, the FTSE 100 closed 0.35% higher. Meanwhile, AI-related stocks in Japan, including Advantest, SoftBank, and Tokyo Electron, saw sharp declines, contributing to a 1.4% drop in the Nikkei 225. Several Asian markets remained closed for the Lunar New Year holiday, with mainland China's markets set to reopen on February 5.
DeepSeek's Founder: Liang Wenfeng
DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, China. The 40-year-old, an engineering graduate, also established the hedge fund that financed the development of the AI app. Liang recently attended a meeting with industry leaders and Chinese Premier Li Qiang. In a July 2024 interview, he expressed surprise at the sensitivity surrounding the pricing of his AI models, stating that the company had simply focused on cost-efficient development and pricing without anticipating such a reaction from the market.