DeepSeek: What’s next for tech share prices as Nvidia suffers record $589bn drop after new AI release?
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The emergence of Chinese artificial intelligence firm DeepSeek rocked US tech giants’ stocks on Monday amid concerns that the new low-cost AI model would upend their dominance.
Tech shares plunged and chip maker Nvidia suffered falls of nearly 17 per cent on Monday, as President Donald Trump warned DeepSeek’s emergence was a “wake up call” for existing AI giants.
Nvidia’s drop in share price on Monday marked the biggest ever one-day loss in market value on Wall Street, of about $589bn (£473bn).
Yet in pre-trading on Tuesday, Nvidia shares were up by close to five per cent by 10am GMT. Germany-listed Siemens Energy, which dropped around 20 per cent on Monday, was up almost three per cent in-trading.
So what comes next for the biggest tech stocks and their share prices? There remain conflicting opinions, both on DeepSeek’s emergence and on what it means for companies beyond chipmakers in the wider AI-involved sphere.
Naturally, regarding investors, some are claiming the sell-off is overdone, while some are suggesting a new approach to AI modelling may be on the horizon and, perhaps, some are simply being speculative on a re-rise. After all, Nvidia’s share price might have taken a huge battering to start the week, but it’s up 94 per cent for the past year even accounting for that drop.
But that surge across the market, driven by the so-called Magnificent Seven, has left some concerned that valuations have climbed too high, concentrated in too few companies.
Billionaire investor Ray Dalio told the Financial Times he believed AI hype and money pouring into those companies based on speculation of adding to profitability in future had led to a bubble. “Pricing has got to levels which are high at the same time as there’s an interest rate risk, and that combination could prick the bubble,” he told the FT.
“Where we are in the cycle right now is very similar to where we were between 1998 or 1999. In other words, there’s a major new technology that certainly will change the world and be successful. But some people are confusing that with the investments being successful.”
In contrast to DeepSeek’s claims, analysts at Bernstein, an equity research company, told clients they believed it to “seems categorically false that ‘China duplicated OpenAI for $5M’ and we don’t think it really bears further discussion,” report the FT.
Against that, analysts at ING told clients: “DeepSeek now seems to show that we can do more with existing computing power than previously thought. The market, therefore, needs to price in a slower adoption rate of high-performance computing and revenues of companies selling AI models.”
That thought process was echoed by Wei Sun, principal analyst for AI at Counterpoint Research. “By achieving cutting-edge results with fewer resources, DeepSeek highlights the potential of efficient innovation over sheer scale, marking a turning point in the AI race,” they told the South China Morning Post.
And yet, there has further been consideration that, rather than DeepSeek’s emergence showing the US companies have it all wrong, a cheaper and viable way to operate could actually lend itself to more widespread adoption and innovation of AI, as more companies could afford to access the chips they need.
Microsoft CEO Satya Nadella wrote on X: “Jevons paradox strikes again! As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.”
Jevons paradox in economics suggests that as the cost of something lowers through technological advancement, overall demand will actually increase, so resource useage increases.
Just a week after its launch, DeepSeek has quickly become the most downloaded free app in the US. It claims that its large language AI model was made at a fraction of the cost of its rivals, including OpenAI, which uses more expensive Nvidia chips to train its systems on vast swathes of data.
The announcement raised significant doubts over the future of US firms’ dominance in AI, prompting the sharp falls for Nvidia, as well as tech giants including Microsoft, Meta and Google parent Alphabet, which are all pouring billions into AI. The S&P 500 dropped 1.5 per cent, dragged down in large part by the fall from Nvidia.
DeepSeek’s claims also affected tech stocks elsewhere, with Dutch chip making company ASML falling 7 per cent and Japan’s Softbank dropping 8.3 per cent.
Analysts initially said the announcement from DeepSeek is especially significant because it indicates that Chinese firms have innovated faster despite the US putting controls on exports of Nvidia’s most powerful chips to the country.
Mr Trump said he was not concerned about the breakthrough, adding that the emergence of DeepSeek could be “a positive” and a “wake-up call” for the US.
“If you could do it cheaper, if you could do it (for) less (and) get to the same end result, I think that’s a good thing for us,” he told reporters on board Air Force One. Mr Trump also said he wanted to bring in trade tariffs that are “much bigger” than the 2.5 per cent that some reports had suggested were favoured by incoming Treasury Secretary Scott Bessent.
Kathleen Brooks, research director at investment firm XTB, said: “How does Trump react to a threat against the US AI dominance? He threatens wide-ranging tariffs on foreign-produced semiconductors, pharma and metals.
“Since Nvidia uses chips produced by TSMC in Taiwan, it could be hit by the tariffs. However, the 17 per cent drop in its share price on Monday, which led to a record $589bn loss in its market cap, may have gone too far and there are early signs in European trading that Nvidia could stage a recovery on Tuesday.”
Additional reporting by Alex Daniel of PA
