Is the Chinese AI DeepSeek a threat to American tech companies?
28 JAN, 2025
The Chinese artificial intelligence startup DeepSeek has caused an earthquake in the global financial markets this week. On Monday, January 27, the company unveiled its new AI model, DeepSeek-R1, which has proven to be more efficient and profitable than its Western competitors.
Impact on the markets
The news has had a devastating impact on the shares of major American tech companies, especially Nvidia, the world's largest AI chip manufacturer. Its shares plummeted 17% during yesterday's trading, representing the largest single-day drop in Wall Street history. The company lost more than 400 billion dollars in market capitalization.
The domino effect quickly spread to other tech stocks and global markets:
- The Nasdaq index, with a heavy tech weighting, fell more than 3%.
- The tech sector as a whole dropped 5.6%.
- European stock markets also suffered losses, with ASML, the leading European manufacturer of AI chips, experiencing a 7% drop.
- In total, it is estimated that stock markets lost more than 1 trillion dollars in value.
For Amadeo Alentorn, manager of the Global Equity Absolute Return fund and director of the systematic equity team at Jupiter AM, DeepSeek's breakthrough in the artificial intelligence sector is part of a trend that has been underway for months, due to the "significant advances in so-called Small Language Models (SLM), which contrast with the large models used by companies like OpenAI", points out Amadeo.
From a market perspective, "this evolution raises important questions about Nvidia and the future of the semiconductor sector", says the Jupiter AM manager. In this regard, he states that the fourth quarter results of the major tech companies will not yet reflect the impact of these changes, but they could influence future expectations, especially in the semiconductor sector.
Advantages of DeepSeek
The Chinese AI startup DeepSeek has shown the world AI models that offer performance largely comparable to OpenAI's ChatGPT models and are reportedly more cost-effective. "This efficiency advantage has raised a number of questions about the perceived 'winners' of the global AI ecosystem, the implications on the capex of hyperscalers and their utility, as well as the effectiveness of export sanctions and bans aimed at preventing the progress of high-level generative AI in China," said Hyunho Sohn, manager of the Fidelity Funds Global Technology fund. According to the Fidelity manager, this is a constantly evolving situation and we could see short-term volatility until it becomes clear how much more efficient this technology is.
The impact on the markets following the emergence of DeepSeek is largely due to "the perception that DeepSeek R1 is capable of delivering top-tier results, but at a considerably lower cost thanks to the use of fewer and cheaper semiconductors during its training process," emphasizes Jeremy Gleeson, Global Technology Investment Director at Allianz Global Investors.
In general terms, the emergence of the Chinese AI startup DeepSee "could benefit the adoption of artificial intelligence in more companies and sectors; by lowering the entry barrier, AI could be integrated more quickly into different areas of the economy, boosting productivity and efficiency," concludes Amadeo Alentorn.
The asset manager Federated Hermes believes that the impact caused by DeepSeek will ultimately benefit the technology sector. For Nvidia, "as a key provider of premium chips worldwide, "the concern is that companies will need fewer chips in the future, however, the company has responded to the news highlighting the "excellent progress", indicating its optimism for the ongoing development of AI models, which is still in its relative infancy," declares Louise Dudley, Global Equity Portfolio Manager at Federated Hermes.
Current projects under development are at risk, and this will be a focus of attention for investors. However, "it is likely that this news will increase the appetite of companies and consumers for AI tools, given the improvement in accessibility, leveraging this innovation and accelerating the time horizon for the adoption of AI," Dudley emphasizes.
