A Chinese startup called DeepSeek, that’s only been operating for 12 months, has developed an AI model at a cost of a mere $5.6 million, a fraction of the billions of dollars poured into AI development by US-based tech companies.
This shock development sent shares in US tech companies plummeting – for example, shares in NVIDIA, a leading supplier of AI chips, fell in value by almost $600 billion in a single day – by far the largest drop in share value in history.
The value of Meta and Google shares also fell sharply, as well as a flow-on effect impacting energy companies, Bitcoin and other crypto currencies, which all tumbled in share value.
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DeepSeek AI
Reports are suggesting that the China-based DeepSeek is at least as capable as more established AI models costing billions of dollars to develop and, the fact that DeepSeek AI has been developed for a fraction of the cost, now has analysts questioning whether that massive investment will eventually lead to profits or come down to a case of overspending. And the stock market has reacted accordingly.
BOTTOM LINE:
In my opinion, the stock market has hugely overreacted. We all know how volatile share prices can be with even the mere hint of an adverse rumor often sending share prices tumbling. Plus, there are other factors that I believe come into play:
- Everyone is taking the Chinese company at its word that the cost was so low – no one has disputed it. This means that everything to date has been predicated purely on trusting the word of a relatively unknown company
- The US has years of progress behind its AI development compared to DeepSeek’s mere 12 months, which must give US companies a huge advantage
So, I very much doubt that we’ll see a massive consumer shift away from the established US companies in favor of a 12-month old Chinese startup. Nonetheless, the race is on and I guess, as is the case with many things, time will tell.
Finally, I must say that seeing the likes of Meta and Google hit hard in the wallet is somehow quite pleasing.
UPDATE:
Since writing this article the Australian government has announced that DeepSeek AI has been banned from all government systems.
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