Shares of technology companies plunged as an apparent AI breakthrough in China caused a rout in mega-cap U.S. companies, amid fears of rising competition and overspending on U.S. tech infrastructure.
Artificial-intelligence models from DeepSeek, the Chinese company, have zoomed to the global top 10 in performance, according to a popular ranking. DeepSeek developed its AI system without premium, cutting-edge foreign processors.
Shares of Nvidia, the leading maker of these premium chips plunged by 17%, for their biggest decline since 2020.
China is restricted from obtaining chips made by Nvidia and rivals such as Broadcom due to U.S. export curbs, and some strategists said DeepSeek will hit a wall in its efforts because of this exclusion.
DeepSeek estimated it built one of its AI models for about $5.6 million. U.S. AI developers recently estimated the costs of building a comparable model anywhere between $100 million and $1 billion.
Silicon Valley venture capitalist Marc Andreessen described DeepSeek-R1 as "AI's Sputnik moment," a reference to when the Soviet Union launched the first artificial Earth satellite in 1957, kicking off the Space Race. Others were more skeptical about the significance of the breakthrough.
"The markets are clearly panicking today and one would assume it's likely over the concern about DeepSeek," said J.D. Joyce, president of Houston financial advisory Joyce Wealth Management. "The question becomes: have the Chinese found a way to use AI in a much less costly way, or is there more than meets the eye."
Joyce said DeepSeek appeared to be a technology that matched AI innovations rather than making any major step forwards of its own. He expressed skepticism about the Chinese company's ability to create something of comparable quality for "pennies on the dollar."
"Sometimes, when things look too good to be true, it gives me pause," said Joyce. With several Magnificent Seven companies due to report earnings this week, "I imagine there will be quite the rebuttal," said Joyce.
Among the few perceived U.S. winners was Apple, which has, to date, been more of a user of AI than a producer of it. The prospects of cheaper AI software buoyed Apple shares. Investors may have also reassessed their view of Apple's reluctance to invest in its own AI capabilities.
Write to Rob Curran at rob.curran@dowjones.com
(END) Dow Jones Newswires
January 27, 2025 17:39 ET (22:39 GMT)
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