On Monday, January 27, 2025, global markets faced a major shock as tech company stocks plummeted sharply. The catalyst was a new artificial intelligence (AI) system from China that proved significantly cheaper than existing alternatives. According to Reuters, this development undermined investor confidence in the sustained demand for advanced chips and related technologies, which had previously been taken for granted.
The Chinese startup DeepSeek unveiled a free virtual assistant that reportedly operates on cheaper chips and requires less data for training. This breakthrough challenged the long-held belief that AI development would automatically drive demand across the entire supply chain, from chip manufacturers to servers and data centers. DeepSeek’s innovation suggests that creating highly efficient AI systems can now be more accessible, disrupting the market dominance of major players.
Bloomberg reports that global stock markets, from New York to London and Tokyo, came under significant pressure. The Nasdaq index fell by 3%, marking one of its sharpest declines in recent months. Chip manufacturers were hit even harder, with their sectoral index dropping by 9%. Nvidia, in particular, saw its shares plunge by 16%, potentially marking the largest single-day loss in market capitalization for a single company in history. Nvidia, which has been a symbol of the AI boom, now faces a reassessment of its market role.
This situation has further shaken investor confidence in technologies previously seen as essential for long-term global economic growth. Many analysts point out that DeepSeek’s success could encourage other companies to develop cheaper solutions, thereby weakening the dominant positions of current leaders like Nvidia, AMD, and Intel.
Amid these developments, market attention has shifted to the upcoming financial reports of major tech companies such as Microsoft and Apple. These reports are expected to be a critical indicator of the sustained demand for their products and services. Positive results could help restore investor confidence in the so-called “Magnificent Seven” industry leaders, which also include Amazon, Alphabet, Meta, Nvidia, and Tesla.
Additionally, analysts emphasize that this situation could mark the beginning of a new era in AI technology development. If models like DeepSeek’s prove genuinely competitive, it could lead to significant shifts in resource allocation within the tech sector. Chip manufacturers and data center operators will need to adapt quickly to maintain their positions.
On the other hand, some experts caution that cheaper technologies may fall short of the high-performance standards required for complex tasks such as autonomous driving or medical diagnostics. This could limit their applications in critical industries, leaving room for premium solutions from market leaders.
In the long term, this situation could lead to the emergence of two parallel paths in AI development. One will focus on high-performance solutions for complex tasks requiring significant computing power, while the other will aim at affordable technologies serving the mass market. Only time will tell which approach will ultimately prevail.
