The $1 Trillion Wipeout - Chinese DeepSeek Hits Nvidia, Nasdaq & More Global Tech Stocks

It’s not every day that a single company sends shockwaves through the global tech market. But last week, Chinese AI firm DeepSeek did just that, leaving Wall Street reeling and sparking a $1 trillion wipeout in tech stocks. The ripple effects were felt far and wide, from Nvidia’s historic market cap loss to a 5% drop in the Nasdaq. Let’s break it down.

The DeepSeek Surprise

President Trump has used all the possible influential platforms to highlight how he wants the U.S. to lead the AI game - but statements alone seem to fall short here. Deepseek has spooked the entire tech market and the shockwaves are too hard to go unnoticed. 

But, what Is DeepSeek, and why is it causing chaos?

DeepSeek, a relatively unknown player in the AI space, launched its free AI assistant- DeepSeek r1 on January 10. The DeepSeek-R1 model quickly surged in popularity, overtaking ChatGPT as the top-rated free application on the Apple App Store in the U.S. 

What’s the big deal? DeepSeek claims its model “tops the leaderboard among open-source models and rivals the most advanced closed-source models globally.” And it did so at a fraction of the cost.

But what had Silicon Valley leaders breaking out in a frenzy were claims that the open-source LLM DeepSeek-R1 was trained with a fraction of the computing power they've been relying on. While U.S. tech giants like OpenAI, Meta, and Google have spent billions developing their large language models, DeepSeek reportedly trained its model for less than $6 million within 2 months and with a team of less than 200 people!

Nvidia’s $600 Billion Knock Off

The biggest AI chipmaker Nvidia felt the ground shake in particular. Nvidia suffered its largest one-day market cap loss in history, shedding nearly $600 billion in value. 

Why did it happen? 

DeepSeek’s model was trained on midrange Nvidia H800 chips, not the high-end, ultra-expensive GPUs that Nvidia has been pushing. 

Elon Musk, who has heavily invested in Nvidia chips for his xAI company was the first to raise eyebrows by alleging that DeepSeek may have used banned H100 chips. Though there are rumors that China has been smuggling these high-end chips via Singapore, the claims remain unsubstantiated.  

The U.S. government banned the sale of these chips to China in 2022 over concerns about military applications. Whether or not DeepSeek used these chips, the damage has been done. Nvidia’s stock dropped by 17% in a single trading day, while other AI-adjacent stocks like Broadcom and Microsoft also took a hit, albeit not as heavily.

The tech-heavy Nasdaq wasn’t spared either. By the end of Monday (27th January), the index had lost a staggering $1 trillion in market cap and the Nasdaq composite had declined by 5%. Though, the majority of that loss came from a sell-off of Nvidia shares.

But today, some of those stocks are recovering, at least to a degree. 

The Fallout

DeepSeek’s achievements have been described as “AI’s Sputnik moment” by Silicon Valley venture capitalist Marc Andreessen, referencing the Soviet Union’s 1957 satellite launch that sparked the space race. Even OpenAI CEO Sam Altman praised DeepSeek’s R1 model, calling it “impressive” and acknowledging its cost efficiency. He also added, “We will obviously deliver much better models, and...we will pull up some releases.”

But the praise comes with a warning. DeepSeek’s success has exposed a glaring vulnerability in the U.S. tech industry’s AI strategy. Companies like Microsoft and Meta are spending tens of billions on AI infrastructure, but DeepSeek has shown otherwise. 

As an analyst at Truist, Keith Lerner pointed out, 

“The bottom line is the US outperformance has been driven by tech and the lead that US companies have in AI. The DeepSeek model rollout is leading investors to question the lead that US companies have and how much is being spent and whether that spending will lead to profits (or overspending).”

President Trump said Monday at a GOP event in Florida:

"The release of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we need to be laser-focused on competing to win." 

With DeepSeek proving that powerful AI can be developed at a fraction of the cost, companies are reassessing their investments. If advanced AI models can now be trained on lower-spec hardware, why should companies keep shoveling money to Nvidia for their latest, most costly chips?

A recent rumor has it, that Apple Silicon might be starting to shake things up. The M2 Ultra is proving to be a cost-effective option for running AI models like DeepSeek R1. It comes with its unified memory and UltraFusion tech. To put into perspective, Apple chip memory costs just $26 per GB compared to the $312 price tag for Nvidia’s H100. 

This news might add to the excitement. If this happens then this 256GB of unified memory with almost 1.2TB/s bandwidth might be the next big thing. In addition to this, Apple’s chips are anticipated to be far more efficient than the regular GPUs. Apple might not be making a lot of noise for now, but it is making the move to take a good position in the AI race. 

What About Stargate?

Just last week, Trump announced a $500 billion AI infrastructure deal, dubbed Stargate, involving OpenAI, SoftBank, and Oracle. DeepSeek’s lean operating model makes this half-trillion-dollar price tag look like a display of tech industry arrogance. The timing of DeepSeek’s launch couldn't be worse for the U.S.

At the same time, Meta CEO Mark Zuckerberg pledged to invest between $60 and $65 billion in AI in 2025. Microsoft also announced an investment of $80 billion in AI infrastructure.

The Bottom Line

The big question now is whether U.S. tech giants can adapt. Can OpenAI and others match DeepSeek’s cost efficiency? How long will it take? And with billions already committed to AI infrastructure, could these investments become obsolete before they even come online?

For now, DeepSeek has sent a clear message - the AI race is far from over, and the rules of the game are changing. DeepSeekR1 has swiftly changed and challenged the dynamics of global tech markets. With its low-cost, high-performance AI model, the Chinese firm has proven that you don’t need billions to compete. As U.S. tech stocks recover from the initial shock, one thing is clear: the AI world is evolving faster than anyone anticipated. And DeepSeek is leading the charge.

All eyes are on AI, where the only constant is change.