Nvidia Shares Sink as Chinese AI App Spooks Markets

US tech giant Nvidia lost over a sixth of its worth after the rising appeal of a Chinese artificial intelligence (AI) app scared investors in the US and Europe.

DeepSeek, a Chinese AI chatbot reportedly made at a fraction of the cost of its rivals, released last week but has currently become the most downloaded free app in the US.

AI chip giant Nvidia and other tech firms connected to AI, including Microsoft and Google, saw their worths topple on Monday in the wake of DeepSeek’s sudden rise.

In a separate advancement, DeepSeek stated on Monday it will momentarily limit registrations because of “large-scale malicious attacks” on its software.

What is DeepSeek and why did it cause tech stocks to drop?

The DeepSeek chatbot was apparently developed for a fraction of the expense of its rivals, raising questions about the future of America’s AI dominance and the scale of financial investments US firms are preparing.

Last week, OpenAI joined a group of other firms who promised to invest $500bn (₤ 400bn) in constructing AI infrastructure in the US.

President Donald Trump, in among his first statements considering that going back to office, called it “the largest AI facilities project by far in history” that would help keep “the future of technology” in the US.

DeepSeek is powered by the open source DeepSeek-V3 design, which its scientists declare was trained for around $6m – considerably less than the billions invested by rivals.

But this claim has been disputed by others in AI.

The researchers say they utilize currently existing technology, as well as open source code – software application that can be used, modified or dispersed by anyone complimentary of charge.

DeepSeek’s development comes as the US is restricting the sale of the innovative chip innovation that powers AI to China.

To continue their work without stable supplies of imported sophisticated chips, Chinese AI developers have shared their work with each other and explore new methods to the technology.

This has led to AI models that need far less calculating power than in the past.

It also suggests that they cost a lot less than previously thought possible, which has the potential to upend the market.

After DeepSeek-R1 was launched previously this month, the business possessed “performance on par with” among OpenAI’s newest models when utilized for tasks such as mathematics, coding and natural language reasoning.

Silicon Valley investor and Trump consultant Marc Andreessen described DeepSeek-R1 as “AI‘s Sputnik moment”, a to the satellite launched by the Soviet Union in 1957.

At the time, the US was thought about to have been caught off-guard by their competitor’s technological achievement.

DeepSeek’s abrupt appeal has stunned stock exchange in Europe and the US.

In the US, AI chipmaker Nvidia ended Monday’s trading having plunged 16.9% while its rival Broadcom plunged 17.4%.

Other tech firms likewise sank, with Microsoft down 2.14% and Google’s owner Alphabet down over 4%.

In Europe, Dutch chip devices maker ASML ended Monday’s trading with its share cost down by more than 7% while shares in Siemens Energy, which makes hardware related to AI, had actually plunged by a fifth.

“This idea of an inexpensive Chinese version hasn’t always been forefront, so it’s taken the marketplace a bit by surprise,” said Fiona Cincotta, senior market expert at City Index.

“So, if you suddenly get this inexpensive AI model, then that’s going to raise issues over the earnings of competitors, particularly provided the amount that they’ve already bought more expensive AI facilities.”

Singapore-based innovation equity consultant Vey-Sern Ling informed the BBC it could “potentially thwart the investment case for the whole AI supply chain”.

But Wall Street banking giant Citi warned that while DeepSeek could challenge the dominant positions of American companies such as OpenAI, problems faced by Chinese companies could hinder their advancement.

“We approximate that in an inevitably more restrictive environment, US access to advanced chips is a benefit,” experts stated in a report.

Meanwhile, DeepSeek stated on Monday it had actually been the victim of a cyberattack.

“Due to massive destructive attacks on DeepSeek’s services, we are temporarily restricting registrations to guarantee continued service,” it stated in a statement.

“Existing users can visit as usual. Thanks for your understanding and assistance.”

Who established DeepSeek?

The company was established in 2023 by Liang Wenfeng in Hangzhou, a city in southeastern China.

The 40-year-old, an information and electronic engineering graduate, also established the hedge fund that backed DeepSeek.

He supposedly built up a store of Nvidia A100 chips, now prohibited from export to China.

Experts believe this collection – which some estimates put at 50,000 – led him to launch DeepSeek, by combining these chips with less expensive, lower-end ones that are still available to import.

Mr Liang was just recently seen at a meeting in between market professionals and the Chinese premier Li Qiang.

In a July 2024 interview with The China Academy, Mr Liang stated he was shocked by the response to the previous variation of his AI model.

“We didn’t anticipate pricing to be such a delicate problem,” he said.

“We were just following our own pace, determining expenses, and setting prices accordingly.”

Additional reporting by Joao Da Silva and Dearbail Jordan.