Chinese AI Disruptor Shakes US Markets

US stocks took a hit Monday as a surprising development from Chinese AI startup DeepSeek rattled the tech sector. Nvidia, the dominant supplier of AI chips, led the losses, shedding a staggering 17% in value. This amounted to $588.8 billion wiped off its market cap—the largest single-day loss ever recorded, more than doubling Meta’s $240 billion plunge three years ago. Nvidia’s valuation, once the world’s highest at over $3.4 trillion, now trails behind Apple and Microsoft.

The broader market felt the tremors. The Nasdaq fell 3.1%, and the S&P 500 dipped 1.5%, while the Dow managed a 0.7% gain, buoyed by sectors less exposed to AI. Tech stocks like Meta and Alphabet dropped sharply, alongside chipmakers Marvell and Broadcom. Energy stocks, previously buoyed by AI’s energy demands, also suffered. Constellation Energy, pivotal in AI-related nuclear power projects, plummeted 21%, while natural gas futures dropped 5.9%.

DeepSeek’s announcement of its AI model, R1, caused the upheaval. Unlike its American rivals, R1 operates at a fraction of the cost—$5.6 million compared to the billions spent by OpenAI, Google, and Meta. DeepSeekachieved this using underpowered AI chips, and this news has caused shivers across the market as it considers what a low-price disruptor will do in the notoriously capital-intensive sector.

What Does This Mean for Me?

This unexpected breakthrough is prompting investors to question whether US firms’ massive AI spending—Meta plans $65 billion this year—will yield sustainable profits. The development also sparked renewed interest in Chinese tech stocks, which trade at discounts due to geopolitical tensions.