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Wednesday, February 12, 2025
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HomeSoftwareLow-Cost Chinese AI Chatbot Roils Tech Stocks

Low-Cost Chinese AI Chatbot Roils Tech Stocks

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AI chatbot from Chinese start-up DeepSeek jumps to top of iOS free downloads in US, shaving billions off tech stocks around world

Shares in prominent technology stocks around the world plummeted on Monday, after a low-cost AI chatbot launched by a little-known Chinese start-up cast doubt upon the vast spending on artificial intelligence infrastructure by tech firms over the past two years.

The free app from start-up DeepSeek reached the top spot for free apps on Apple’s iOS App Store on Monday, dethroning OpenAI’s ChatGPT.

The surprise development sent shockwaves through a financial world in which investors have been driving up the market values of a range of companies involved with AI, from start-ups to tech giants, data centre operators and even the power companies supplying electricity for power-hungry AI infrastructure.

DeepSeek, based in Hangzhou, near Shanghai on China’s east coast, launched its free app in US app stores on 10 January.

Liang Wenfeng, right, founder of AI chatbot start-up DeepSeek, pictured in January 2025. Image credit: CCTV

‘Sputnik moment’

The app skyrocketed in popularity after DeepSeek launched its latest reasoning model, R1, on 20 January.

The start-up, whose staff are mostly fresh university graduates, says the performance of R1 matches OpenAI’s o1 series of models.

The company said it spent only $5.6 million (£4.5m) training its base model, compared to the hundreds of millions or billions of dollars US companies have typically spent developing their models.

DeepSeek said in a technical report it carried out training using a cluster of more than 2,000 Nvidia chips to train its V3 model, compares to tens of thousands of such chips typically used to train a model of similar scale.

Marc Andreessen, a supporter of US president Donald Trump and a leading tech investor, called DeepSeek’s R1 “one of the most amazing and impressive breakthroughs I’ve ever seen”.

He called it a “Sputnik moment”, in reference to Soviet Russia’s launch of the Sputnik satellite in 1957.

The fact that the model is open source makes it “a profound gift to the world”, he said in a post on social media.

Share volatility

DeepSeek’s development, and its sudden popularity, prompted investors to question the narrative around AI that has justified immense waves of spending since the public launch of ChatGPT in November 2022.

Nvidia, which makes the dominant AI accelerator chips, saw its market value decline by more than 16 percent by mid-afternoon trading in the US, wiping more than $500 billion (£400bn) off its market value — although the company remains worth some $2.9tn.

Shares in its rival Broadcom were down more than 18 percent, with Marvell and Micron also dropping sharply.

Data centre companies saw their stocks fall, with Oracle down more than 15 percent, Vertiv down 30 percent, Constellation Energy down 20 percent and NuScale Power down 26 percent.

Constellation is the company behind a plan to revive the Three Mile Island nuclear plant to power AI data centres.

Energy stocks

Futures for natural gas, used to power generators, tumbled 8 percent and oil dropped more than 1 percent.

The Netherlands’ ASML, which makes high-end chip manufacturing equipment, was down by 7 percent, while Japanese competitor Tokyo Electron was down nearly 5 percent.

OpenAI backer Microsoft was down around 2 percent, while Google parent Alphabet was trading around 3 percent lower.

Bitcoin fell by 5 percent, with other cryptocurrencies also falling.

Shares in Facebook parent Meta Platforms and Apple were both up slightly, with Meta up under 1 percent and Apple up nearly 4 percent.



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