A possible breakthrough in China could put an end to the AI stock rally that one U.S. analyst called “one of the greatest spending binges in human history.”
What happened: The world’s most valuable tech stocks were sold off en masse following news that DeepSeek, a Chinese AI startup, reportedly built an AI model that is just as good — if not better — than models by OpenAI and Google for a fraction of the price.
- The company claims that training its DeepSeek-V3 model required less than US$6 million worth of computing power from Nvidia’s cheaper and older H800 chips.
- Nvidia stock fell 17%, wiping $589 billion from its market value (costing CEO Jensen Huang $20.8 billion) in the biggest single-day loss of value for any public company.
Why it matters: Public and private investors have poured billions into AI companies based on the understanding that these models are extremely expensive to build and run. DeepSeek’s success questions whether all that cash is really needed to develop the tech.
- One economist told Reuters that the breakthrough could mean less demand for newer chips, less need to build power, and less need for large-scale data centers.
Big picture: Many people’s portfolios hang on the success of these AI companies. The so-called Magnificent 7 — made up of Apple, Alphabet, Nvidia, Microsoft, Meta, Amazon, and Tesla — accounted for more than half of the S&P 500's 25% return last year.—LA