DeepSeek Impact: Is a Chinese AI Start-up Shaking the Market?

The US stock futures took a sharp hit early on Monday, January 27, reflecting a possible turbulent start for global markets. Nasdaq futures tumbled by nearly 400 points, with the Dow Jones futures following suit, down close to 200 points. This development is casting a shadow on the Indian stock market, particularly the Nifty 50, ahead of its January expiry and the Union Budget this weekend.

The Role of DeepSeek in Market Sentiment

The steep sell-off has been linked to DeepSeek, a Chinese AI start-up that has quickly made waves in the tech world. Emerging as the most downloaded free app on the iOS App Store, DeepSeek is being hailed as a formidable competitor to ChatGPT. With speculation around ChatGPT’s potential transition to a for-profit model, DeepSeek’s free alternative has attracted significant attention, prompting fears of a bubble burst in the US AI sector.

Cost Efficiency Redefining AI Development

DeepSeek has turned heads not only for its capabilities but also for the economics of its development. While ChatGPT’s training required 10,000 Nvidia GPUs and an estimated cost of $100 million to $1 billion, DeepSeek claims to have built a comparable model in just two months for $5.58 million, using only 2,000 GPUs. This stark contrast has raised eyebrows across the tech industry, potentially pressuring valuations of AI-centric companies like Nvidia, which enjoyed a massive 135% rally in 2024.

Potential Impact on US Tech Stocks

The emergence of DeepSeek has sparked broader concerns over the valuations of US tech companies heavily invested in AI. Nvidia, a key player in providing GPUs for AI development, is expected to remain under scrutiny. With market participants questioning whether DeepSeek could trigger a revaluation of AI technology costs, the tech-heavy Nasdaq is bearing the brunt of the sell-off.

The Bigger Picture: Global Market Implications

Beyond the Nasdaq, the ripple effects of this development are being felt in global markets. The Dow Jones snapped a 4-day winning streak last Friday and has continued its decline. Closer to home, the Nifty 50 index follows suit, as investor sentiment remains cautious ahead of critical domestic events like the Union Budget.

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