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U.S. AI stocks sold off Monday as an app from Chinese AI startup DeepSeek dethroned OpenAI’s as the most-downloaded free app in the U.S. on Apple.
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DeepSeek claims its latest model’s performance is on par with that of American AI leaders like OpenAI, and was reportedly developed at a fraction of the cost.
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However, several analysts raised doubts about the market’s reaction Monday, suggesting reasons it could offer investors a chance to pick up beaten-down AI names.
Shares of AI chipmaker Nvidia (NVDA) and a slew of other stocks related to AI sold off Monday as an app from Chinese AI startup DeepSeek boomed in popularity.
DeepSeek’s AI assistant recently topped the list of free iPhone apps on Apple’s (AAPL) app store. (It wasn’t in the top 10 on Alphabet’s (GOOGL) Google Play store, though it is listed there.) In Apple’s store, the app ranked higher than ChatGPT; not so on Google.
Here’s what you need to know about DeepSeek—and why it’s having a big impact on markets. And if you’re wondering if it wasn’t that long ago that another Chinese app was topping the download charts, you’re not wrong.
DeepSeek, a Chinese startup founded by hedge fund manager Liang Wenfeng, was founded in 2023 in Hangzhou, China, the tech hub home to Alibaba (BABA) and many of China’s other high-flying tech giants.
The company says its latest R1 AI model released last week offers performance that is on par with that of OpenAI’s ChatGPT. Its V3 base model launched in December was also reportedly developed in just two months for under $6 million, at a time when the U.S. is limiting China’s access to its most sophisticated chips and American AI leaders like OpenAI, Anthropic, and Meta Platforms (META) are spending billions of dollars on development.
The rapid ascension of DeepSeek has investors worried it could threaten assumptions about how much competitive AI models cost to develop, as well as the kind of infrastructure needed to support them, with wide-reaching implications for the AI marketplace and Big Tech shares.
Nvidia in a statement called DeepSeek “an excellent AI advancement,” calling it a “perfect example” of a concept known as test time scaling.
The tech-heavy Nasdaq fell more than 3% Monday as investors dragged a host of stocks with ties to AI, from chip to energy firms, downwards.
Shares of American AI chipmakers including Nvidia, Broadcom (AVGO) and AMD (AMD) sold off, along with those of international partners like TSMC (TSM). The PHLX Semiconductor Index (SOX) dropped more than 9%. Networking solutions and hardware partner stocks dropped along with them, including Dell (Dell), Hewlett Packard Enterprise (HPE) and Arista Networks (ANET).
