Viral AI Company DeepSeek Storms the Stock Market

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Chinese artificial intelligence firm DeepSeek is making significant waves in the U.S. market, attracting notable attention from both consumers and investors. Its latest technology is comparable to OpenAI's ChatGPT, prompting discussions about its potential to disrupt the current AI landscape.

According to Wedbush Securities analyst Dan Ives, What sets DeepSeek apart is its remarkably low development expenditure for its AI application, estimated at just $6 million. This starkly contrasts with the projected investment of around $1 trillion by major U.S. players like OpenAI and Google over the next several years, as indicated by Goldman Sachs. This cost-efficiency highlights DeepSeek's innovative approach and raises questions about scalability and sustainability in the highly competitive AI sector.

What is DeepSeek?

DeepSeek was established by Liang Wenfeng, a Zhejiang University alumnus and experienced hedge fund manager overseeing $8 billion in assets. Initially, the company operated as a small, privately funded venture with a focus on harnessing AI in groundbreaking ways. Liang's strategic decision to stockpile Nvidia chips, which are now subject to export restrictions to China, laid the technological groundwork for DeepSeek's advancements. These chips played a crucial role in developing the company’s AI models, effectively navigating the complexities posed by U.S. government regulations.

The flagship AI application from DeepSeek was unveiled on January 20, 2025, and rapidly ascended the rankings of Apple’s App Store. It is powered by an open-source large language model (LLM) optimized for cost efficiency and high throughput. A key differentiator for DeepSeek is its implementation of "inference-time computing," which selectively engages only the most pertinent sections of the model in response to each query. This approach markedly decreases computational requirements and mitigates energy consumption.

The technological innovations achieved by DeepSeek have garnered accolades from esteemed figures in the tech industry. Notably, Marc Andreessen commended DeepSeek’s latest model as one of the most amazing and impressive breakthroughs in recent times, underscoring the significance of its contributions to the field.

The Technology Behind DeepSeek

DeepSeek has advanced its open-source large language model (LLM), R1, competing with and sometimes outperforming established AI solutions. Its Janus-Pro multimodal AI frameworks, with parameters ranging from 1 billion to 7 billion, excel in image analysis and generation, surpassing OpenAI’s DALL-E 3 and Stability AI’s Stable Diffusion XL in specific tests.

DeepSeek achieves strong performance at a fraction of the cost, developing its latest application for about $6 million, compared to the projected $1 trillion investment from industry giants like OpenAI and Google. The open-source nature of its models, particularly the Janus-Pro-7B, has gained acclaim for efficiency and adaptability, outperforming notable benchmarks while maintaining low resource requirements.

Even with restrictions on lower-capability Nvidia chips, Janus-Pro demonstrates exceptional performance, highlighting DeepSeek's innovation within constraints. This positions DeepSeek as a strong contender in the AI field, proving that significant advancements can come from cost-effective approaches.

Stock Market Turmoil

DeepSeek's emergence has significantly disrupted the stock market, predominantly impacting AI-centric equities. Nvidia, a premier supplier of cutting-edge AI processors, faced an unprecedented 17% plummet in its stock value on Monday, erasing approximately $600 billion in market capitalization—marking the most substantial single-day loss recorded for a public company. Concurrently, other semiconductor giants such as ASML and Broadcom also encountered severe declines, with stock prices falling by 6% and 17%, respectively.

The ramifications extended well beyond the tech sector, adversely affecting energy stocks as well. Companies like GE Vernova and Vistra reported sharp declines of 21% and 28%, respectively, as market participants expressed trepidation over DeepSeek’s energy-efficient innovations potentially diminishing the demand for traditional, power-intensive AI infrastructures.

Despite the prevailing market turmoil, certain analysts contend that the selloff may be an overreaction. Adam Crisafulli from VitalKnowledge stated, “The formidable demand for AI will persist in propelling key players within the sector.” Nevertheless, the disruptive implications of DeepSeek's technology have compelled many investors to reevaluate the financial valuations assigned to established AI players in Silicon Valley.

Wall Street's Perspective

The market response to DeepSeek’s recent advancements has been markedly divided. Certain analysts herald the company as a potential disruptor, while others express skepticism regarding its viability in the long term. Ben Reitzes, head of technology research at Melius, acknowledges the substantive breakthroughs achieved by DeepSeek but questions the scalability of its solutions. He remarked, “No U.S. Global 2000 enterprise is likely to deploy a Chinese startup like DeepSeek for their AI infrastructure initiatives.”

Conversely, experts such as Giuseppe Sette, president of AI market research firm Reflexivity, argue that DeepSeek's innovations underscore the possibility of cost-effective AI strategies reshaping conventional business paradigms. He emphasized, “The emergence of AI will continue to yield unexpected developments in the coming years.”

Wall Street's apprehensions also extend to the wider technology landscape. Angelo Zino, senior equity analyst at CFRA Research, highlighted that DeepSeek’s economically efficient model could compel U.S. firms to reconsider their AI investment strategies. He noted, “The prospect that this technology demands less energy and is more cost-effective than U.S.-based alternatives is a significant concern for technology investors in the U.S.”

Looking Forward

DeepSeek’s rapid rise is challenging established narratives in the AI sector, demonstrating that significant innovation can emerge beyond Silicon Valley's dominant players. By utilizing cost-efficient technology and an open-source model, DeepSeek highlights the ongoing competitiveness in AI.

In reaction to DeepSeek’s success, U.S. government and industry leaders are likely to increase investments and adjust policies. Former President Trump’s $500 billion "Stargate" initiative, in partnership with OpenAI, SoftBank, and Oracle, aims to secure the nation's technological leadership.

However, some analysts, including Bernstein Research, caution against overreacting, noting that DeepSeek's advancements, while promising, may not revolutionize the AI ecosystem entirely. Nvidia has also emphasized the continuing importance of high-performance GPUs for AI inference.

As the global AI landscape evolves, the implications of DeepSeek's achievements will be significant across multiple sectors. While it remains to be seen if this marks a new competitive era or a temporary disruption, DeepSeek's impact on the market and tech industry is just beginning.