China’s AI startup threat triggers $1T US market crash

The popularity of the Chinese AI app DeepSeek and its free DeepSeek-R1 model—which, according to Alexandr Wang, CEO of Scale AI, is on par with OpenAI, Anthropic, Apple and Meta models—sent tech stocks crashing Monday.

The Magnificent Seven stocks collectively lost $1 trillion in market value, reports Axios.

What started it?
Last week, Chinese upstart DeepSeek released its open-source R1 model, rivaling top AI tools. The company said the model cost less than $6 million to develop, less than 10% of the training costs of OpenAI’s ChatGPT and Meta’s Llama.

DeepSeek-R1 is reportedly powered by Nvidia’s less advanced chips. The “reasoning” model questions the billions of dollars American tech giants pour into AI.

DeepSeek dethroned ChatGPT and became the most downloaded free app on Apple’s App Store in the US. The company had to limit user registrations after facing cyberattacks.

These events were enough to fuel a global tech stock sell-off.

AI chipmaker Nvidia was the most hit, with shares dropping nearly 17%, erasing $589 billion in market value. The stocks of other chip companies like Broadcom and Micron also fell over 10%.

Worldwide, stocks of chipmakers like Taiwan’s TSMC and Europe’s ASML were down 13% and 6%, respectively. Japan’s SoftBank Group finished down 8.3%.

US tech companies that rallied behind AI developments and spent billions on the tech also saw losses. OpenAI backer Microsoft stock fell 2.1%, and Google parent Alphabet ended down 4.2%.

The market decline sent shockwaves through Silicon Valley and Wall Street, raising concerns over America’s leadership in AI tech.

It also has investors questioning whether massive funding rounds and billion-dollar valuations in the industry are sustainable.

Meanwhile, Bernstein analysts did not believe that DeepSeek built the model at such a low price and said that the “Twitterverse panic” seems blown out of proportion.