Yahoo Finance

Artificial intelligence-related tech stocks tumbled at the start of this week on the back of Chinese firm DeepSeek's release of a cost-effective AI model.

DeepSeek develops open-source large language models and its app has been climbing up the download charts, with the company launching its R1 model last week.

The start-up claimed that the new model offers "performance on-par" with the OpenAI o1 model. DeepSeek also said that its AI assistant runs off lower cost chips and uses less data than leading models.

These advances rattled investors, as it sparked concerns about the level of spending on AI by the major tech companies in the US.

Shares in chipmaker Nvidia (NVDA), which has been considered a major beneficiary of the AI boom, plunged 17% on Monday. This wiped $589bn (£474bn) off of the chipmaker's market value, which marked the largest single-day loss in stock market history.

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US markets fell more broadly, though stocks have since started to recover as earnings releases from "Magnificent 7" companies including Meta (META) and Apple (AAPL) boosted investor optimism.

In a note on Friday, Thomas Mathews, head of markets, Asia Pacific at Capital Economics, said: "DeepSeek doesn’t seem like an existential threat to the overall “AI bubble” to us: if anything, the interest in it emphasises the hype around the technology.

"But readers may recall that during the final year of the “dotcom bubble”, the US stock market began to lag its developed market peers (despite posting otherwise large gains)."

"It’s not hard to imagine the news about DeepSeek kickstarting a similarly sustained bout of US underperformance, if it really is the case that large-language models can be trained with less advanced chips than previously assumed," he said.

However, he added that "it’s probably too soon to throw in the towel on the US market just yet".

In a poll this week, we asked whether you China's AI-push spelled trouble for US Big Tech. We received 1,046 votes, with 36% of readers believing it to be a concern. Nearly half (30%) of readers disagreed, while 15% were undecided.

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