The start of this week saw roughly $1 trillion wiped off leading US tech stocks, following the launch of Deepseek, a Chinese rival to AI offerings such as Microsoft ChatGPT. What has really spooked the markets is that the Chinese artificial intelligence (AI) assistant uses less data and generates lower all-round costs than its current Silicon Valley rivals.
The expense of training and developing DeepSeek’s models is claimed to be only a small fraction of that required for OpenAI, putting into question the need to invest in the latest and most powerful AI accelerator chips from Nvidia. At the start of trading this week, Shares in Nvidia dropped a full10 percent and AI data analytics company Palantir lost seven percent in pre-market trading. Microsoft, Google’s parent company Alphabet, and Meta all also experienced a drop in their share price.
The stock market’s jitters regarding current levels of AI investment in the US follows last week’s unveiling of Big Tech’s Stargate Project, an ambitious four-year $500 billion investment in the world’s biggest AI infrastructure project. Embarrassingly for Silicon Valley, the Stargate Project is based on assumptions concerning AI’s energy consumption that now already appear outdated in the face of a new low-cost more energy-efficient AI model developed in China.
US energy stocks also took a tumble as investors learned that Deepseek may also consume far less energy than its US rivals. For example, Constellation Energy, known to be building significant new capacity to accommodate the presumed power-hungry needs of AI, fell by over 20 percent.
New kid on the block – Liang Wenfeng
AI’s new kid on the block is Laing Wenfeng who founded Deepseek in Hangzhou, southeastern China, in 2023. The 40-year-old also founded the hedge fund that backed Deepseek. Deepseek claims to have been successful in pairing high-end Nvidia A100 chips, now banned from export to China, with low-end chips that can still be imported to China. Liang recently attended a meeting between industry experts and the Chinese premier Li Qiang.
But, to some extent, this week’s drop in Big Tech share value is a correction of investors drinking Silicon Valley’s kool-aid regarding the potential of AI. Optimism concerning the rollout of AI has pushed up some stock valuations to levels that some market observers have said were already unrealistic, even before the launch of Deepseek. Nvidia’s share price, for example, rose over 200 percent over an 18-month period and was already trading at approximately 56 times its earnings.
