China’s DeepSeek breakthrough sends shockwaves through U.S. tech markets

A surprising development from China has rattled U.S. financial markets, disrupting the artificial intelligence (AI) frenzy that has dominated investor sentiment in recent months. This is an Ignite Media Zimbabwe news production.

DeepSeek, a Chinese AI company, announced it has developed a large language model capable of competing with U.S. tech giants like OpenAI and Google—but at a fraction of the cost.

The news sent shockwaves through the tech sector, leading to significant declines in high-flying stocks such as Nvidia, Broadcom, and Alphabet (Google’s parent company).

By Monday morning, DeepSeek’s app had already climbed to the top of the charts on Apple’s App Store, a remarkable achievement given the U.S. government’s restrictions on China’s access to advanced AI chips. Analysts noted that DeepSeek’s success highlights China’s growing ability to innovate despite technological barriers, raising concerns about the future competitiveness of U.S. tech firms.

Market Impact by the Numbers

The announcement triggered a sharp selloff in the tech sector, with the S&P 500 tech index plunging 5.6%—its largest single-day drop since September 2020. Nvidia, a Wall Street darling and leader in AI chip manufacturing, was among the hardest hit, with its stock falling by double digits. The company lost approximately 590 Broader Market Reactions

While the tech sector struggled, other parts of the market showed resilience. Surprisingly, 351 stocks in the S&P 500 posted gains on Monday, underscoring the outsized influence of tech stocks on the index. The Dow Jones Industrial Average, which has less exposure to tech compared to the S&P 500 and Nasdaq, even managed a modest gain.

One of the day’s biggest losers was Vistra Corp., an independent power producer unrelated to the tech industry. Its shares plummeted 28.3%, the largest drop in the S&P 500. Vistra had surged last year on expectations that the AI boom would drive massive demand for energy, but Monday’s selloff reflected growing uncertainty about the sector’s future growth.

What is DeepSeek?

DeepSeek’s rapid rise has raised questions about its potential to disrupt the global AI landscape. The company’s ability to develop a competitive large language model despite U.S. restrictions on advanced chip exports to China has been particularly striking. DeepSeek’s open-source approach and cost efficiency have also contributed to its popularity, posing a direct challenge to U.S. AI leaders.

A Reckoning for Tech?

The selloff has sparked a broader debate about the sustainability of the AI-driven rally that has propelled tech stocks to record highs. Nvidia, in particular, faces a reckoning as investors reassess its valuation and growth prospects in light of emerging competition from China.

While the U.S. remains a leader in foundational AI research and innovation, DeepSeek’s success underscores the growing threat posed by China’s tech sector. As the AI race intensifies, the coming months will be critical in determining whether U.S. firms can maintain their edge or if China’s rapid advancements will reshape the global tech landscape.

For now, the market turbulence serves as a stark reminder of the high stakes and fierce competition in the world of artificial intelligence. Investors will be closely watching how U.S. tech giants respond to this new challenge from the East.

China Has Edge Over US on Much More Than AI Models

The shock release of a new Chinese AI known as DeepSeek that’s cheaper, faster and open source sent shockwaves across Silicon Valley, wiping $1 trln off tech stocks and prompting pundits to dub the development a “Sputnik moment” for the US. But AI language models aren’t the only area where China is now comfortably in the lead.

A comprehensive, 20-year study released by the Australian Strategic Policy Institute in 2024 calculated that China dominates the US in 57 of 64 critical technologies, up from just three in 2007.

The US, which led in a whopping 60 sectors in 2007, now leads in just seven.

ASPI based its rankings on cumulative innovative and high-impact research published and patented by national universities, labs, companies and state agencies.

Where Does China Excel?

advanced integrated circuit design and fabrication

high-specification machining processes

advanced aircraft engines

drones, swarming and collaborative robots

electric batteries

photovoltaics

advanced radiofrequency communication

Where is US Leading?

natural language processing

quantum computing

genetic engineering

What’s China’s Secret?
This is an Ignite Media Zimbabwe news production.
ASPI credits President Xi Jinping’s ‘Made in China 2025’ plan for the infusion of “massive direct state funding for R&D in key technology,” saying strategic investments already underway were turned into a plan to achieve “technological supremacy.”

Besides research spending, Xi’s strategy has seen “large and complementary investments…into industrial policy, upgrading supply chains and the manufacturing sector,” the think tank says.

Global leaders on AI, computing and communications, biotech, gene tech and vaccines, according to calculations from the Australian Strategic Policy Institute.

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