How the Hype Around Chinese AI Model DeepSeek Triggered a Massive Nasdaq Sell-Off

 How the Hype Around Chinese AI Model DeepSeek Triggered a Massive Nasdaq Sell-Off


How DeepSeek, a Rising Chinese AI Startup, Sparked a Massive Nasdaq Sell-Off

A young Chinese AI startup, DeepSeek, triggered a dramatic sell-off in U.S. technology stocks on Monday as its highly competitive and remarkably cost-effective AI models raised concerns about the staggering investments America’s leading tech giants have poured into artificial intelligence.

The emergence of DeepSeek has disrupted investor confidence in the AI narrative that has fueled a U.S. bull market over the last two years. Its breakthroughs cast doubt on the dominance of Nvidia’s chips and created ripple effects across sectors, even impacting power producers expected to benefit from surging AI data center demand.

Here’s how DeepSeek's rise unfolded and shook Wall Street:

The Rise of DeepSeek: A Game-Changer in AI

A Revolutionary New Model
Founded in May 2023 by Liang Wenfeng, DeepSeek was partly funded by Liang’s AI-driven hedge fund. In December, the Hangzhou-based company released a free, open-source large language model developed in just two months at a cost of under $6 million—a stark contrast to the multi-billion-dollar investments by U.S. AI leaders.

On January 20, DeepSeek launched R1, a reasoning AI model that outperformed Open AI’s latest o1 model in third-party benchmarks. What sets R1 apart is its ability to generate a “chain of thought” before providing answers, improving the accuracy of its responses—a significant step forward in AI reasoning.



Challenging U.S. AI Dominance

DeepSeek gained momentum after Alexandr Wang, CEO of Scale AI, praised its competitiveness during the World Economic Forum in Davos. Wang highlighted that Deep Seek’s R1 model rivals the best from American tech giants and disclosed that DeepSeek possesses approximately 50,000 of Nvidia’s coveted H100 chips, despite U.S. export restrictions on advanced AI hardware to China.

By Friday, chatter about DeepSeek caused Nvidia’s stock to slip by 3%, with investors worrying about the long-term implications of DeepSeek’s advancements.

The Weekend Hype and Market Fallout

Over the weekend, enthusiasm around DeepSeek reached a boiling point on social media.

  • Marc Andreessen, co-founder of Andreessen Horowitz, called R1 one of the “most amazing breakthroughs” he had ever witnessed.
  • Tech investor Chamath Palihapitiya lauded a report on R1, highlighting its ability to reason step-by-step without relying on massive supervised datasets—a milestone in AI development.

DeepSeek’s mobile app soared to the top of Apple’s U.S. App Store, surpassing OpenAI’s ChatGPT in downloads.

Wall Street Reacts: A Sea of Red

By Monday morning, U.S. futures had plunged, and tech-heavy stocks were deep in the red. The Nasdaq Composite fell by as much as 3.6%, with Nvidia experiencing its worst day since March 2020—a 12% drop by mid-morning. Other chipmakers and power providers also faced sharp losses, as the market reeled from the realization that DeepSeek’s cost-effective model could redefine the AI landscape.



This upheaval underscores how disruptive innovations like DeepSeek can rapidly challenge established leaders and reshape the global AI race.

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