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DeepSeek’s AI models trigger historic US tech stock sell-off

February 7, 2025 techsmartworld team AI, OpenAI

DeepSeek, the two-year-old Hangzhou-based startup, recently released its DeepSeek-V3 and DeepSeek-R1 models. The AI sector has grown by leaps and bounds in recent years, fueled by advancements in AI tech, the demand for popular chatbots like ChatGPT and Gemini, and the millions that have been invested in the sector by investors across the globe.

Now, the exact opposite has happened – China-origin DeepSeek’s foray into AI has resulted in a massive upheaval in the global tech sector – the company’s low-cost, high-performance AI models have now challenged established players in the sector and triggered an unprecedented sell-off in tech stocks, wiping out billions of dollars in market value.

DeepSeek, the two-year-old Hangzhou-based startup, recently released its DeepSeek-V3 and DeepSeek-R1 models. These AI platforms, according to the company, rival the capabilities of leading Western competitors like OpenAI’s ChatGPT but operate at a fraction of the cost.

What makes these developments all the more enticing is that DeepSeek’s AI models were reportedly developed on Nvidia’s less powerful H800 chips at a cost of under $6 million—significantly less than what competitors typically spend. In other words, you can have fast, efficient performance at a fraction of the cost.

The DeepSeek-R1 model introduced just a week ago, is said to be 20 to 50 times more cost-efficient than similar offerings from industry giants. Independent third-party evaluations have corroborated the company’s claims, confirming that DeepSeek’s models outperform in several key areas.

Moreover, the decision to make these models open-source means that developers worldwide have access to, and can deploy, these tools without substantial investment on their part.

DeepSeek’s gain has proved to be the detriment of other tech companies, though. Nvidia, a dominant force in AI hardware, saw its stock plunge by nearly 17%, translating to a loss of $593 billion in market capitalization. This marked the largest single-day loss in the history of Wall Street, surpassing even its previous record of $279 billion in September.

“DeepSeek demonstrates an alternative path to efficient model training than the current arm’s race among hyperscalers by significantly increasing the data quality and improving the model architecture.

DeepSeek is now the lowest cost of LLM manufacturing, allowing frontier AI performance at a fraction of the cost with 9-13x lower price on output tokens vs. GPT-4o and Claude 3.5,” Morgan Stanley commented on the development.

Other semiconductor companies were similarly affected. Broadcom’s shares fell by 17.4%, while Marvell Technology suffered a 19.1% decline. The Philadelphia Semiconductor Index, a key benchmark for the sector, dropped by 9.2%, its steepest decline since the onset of the pandemic back in 2020.

According to analysts, this widespread fall can be attributed to fears that the demand for high-performance AI chips could be significantly reduced by the rise of more efficient alternatives like DeepSeek’s models.

The Nasdaq Composite Index, heavily populated with tech and AI-focused firms, fell by 3.1%, marking one of its most significant single-day declines in recent years. At its lowest point during the trading session, the index had lost more than $1 trillion in valuation. Similarly, major Big Tech companies like Microsoft and Alphabet, which have invested heavily in proprietary AI technologies, also experienced notable declines.

Microsoft, a key backer of OpenAI, saw its shares drop by 2.1%, while Alphabet, Google’s parent company, fell by 4.2%. Outside the U.S., global markets mirrored this downturn. Japan’s SoftBank Group closed 8.3% lower, and European semiconductor firms like ASML reported losses of over 7%.

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Alphabet highlights aggressive AI spending in Q4 earnings, revenue grows 12%

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Alphabet highlights aggressive AI spending in Q4 earnings, revenue grows 12%

February 5, 2025 techsmartworld team AI, Alphabet, Google

Google parent Alphabet saw its shares drop significantly following the release of its fourth-quarter earnings report for 2024. While the company reported strong earnings growth, its revenue fell short of Wall Street expectations.

The company reported a revenue of $96.47 billion for the fourth quarter, marking a 12% year-over-year increase from $86.31 billion in the same period the previous year. However, this figure came in slightly below analysts’ estimates of $96.56 billion.

Despite the revenue miss, Alphabet’s earnings per share (EPS) exceeded expectations, coming in at $2.15 compared to the anticipated $2.13. The company’s net income rose sharply to $26.54 billion, marking a growth of 28% from the $20.69 billion reported in the same quarter a year earlier.

Operating income also showed a healthy uptick, growing by 31% to amount to $30.97 billion for the three months ended December 2024. For the entire fiscal year, Alphabet’s revenue amounted to $350 billion, while its net income and diluted EPS for the same period amounted to $100 billion and $8.04 respectively.

“Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in computing and driving efficiencies. In Search, advances like AI Overviews and Circle to Search are increasing user engagement.

Our AI-powered Google Cloud portfolio is seeing stronger customer demand, and YouTube continues to be the leader in streaming watchtime and podcasts.

Together, Cloud and YouTube exited 2024 at an annual revenue run rate of $110 billion. Our results show the power of our differentiated full-stack approach to AI innovation and the continued strength of our core businesses.

We are confident about the opportunities ahead, and to accelerate our progress, we expect to invest approximately $75 billion in capital expenditures in 2025,” Sundar Pichai, Alphabet CEO, commented on the matter.

For the first quarter of 2025 alone, Alphabet expects capital expenditures to range between $16 billion and $18 billion, surpassing the $14.3 billion forecasted by analysts. In the fourth quarter of 2024, Alphabet’s capital expenditures totaled $14 billion, slightly above the $13.26 billion estimated by analysts.

Google’s advertising segment, which remains the largest contributor to Alphabet’s overall revenue, reported $72.46 billion in revenue for the fourth quarter. This represented a year-over-year increase of 10.6%, slightly below the 11% growth recorded during the same period in 2023. Revenue from Google Search, a key component of Google’s advertising business, rose by 12.5% (narrowly missing the 12.7% growth rate achieved in the previous year) to amount to $54 billion for Q4 2024. For the same period, YouTube’s advertising revenue reached $10.47 billion, surpassing analysts’ expectations of $10.23 billion.

However, this marks a slowdown from the 15.5% growth recorded in the fourth quarter of 2023, as YouTube ad revenue increased by 13.8% year over year to reach $10.473 billion (exceeding the $10 billion mark for the first time).

Similarly, Alphabet’s Google Cloud division, which has been a focal point of the company’s growth strategy, reported revenue of $11.96 billion for the fourth quarter.

This marked a 30% increase from the previous year but fell short of Wall Street’s expectations of $12.19 billion. Alphabet’s Other Bets segment, which includes ventures such as the life sciences unit Verily and the autonomous driving unit Waymo, continued to struggle in the fourth quarter.

The segment reported revenue of $400 million, significantly below the $616.4 million expected by analysts and a sharp decline from the $657 million reported in the same quarter the previous year. The segment also posted a loss of $1.17 billion, compared to a loss of $863 million in the fourth quarter of 2023.

“We had strong demand for AI products in the fourth quarter and exited the year with more demand than we had available capacity,” Anat Ashkenazi, Alphabet CFO, commented on the matter during the earnings call, adding that the company is “in a tight supply-demand situation.”

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DeepSeek: The Chinese AI app that has the world talking

Tech News

DeepSeek: The Chinese AI app that has the world talking

February 5, 2025 techsmartworld team AI, DeepSeek

DeepSeek, a Chinese artificial intelligence (AI) startup, made headlines worldwide after it topped app download charts and caused US tech stocks to sink.

In January, it released its latest model, DeepSeek R1, which it said rivaled technology developed by ChatGPT-maker OpenAI in its capabilities while costing far less to create.

Its popularity and potential rattled investors, wiping billions of dollars off the market value of chip giant Nvidia – and called into question whether American firms would dominate the booming artificial intelligence (AI) market, as many assumed they would.

President Donald Trump described it as a “wake-up call” for US companies.

What is artificial intelligence?

To understand why DeepSeek has made such a stir, it helps to start with AI and its capability to make a computer seem like a person.

A machine uses technology to learn and solve problems, typically by being trained on massive amounts of information and recognizing patterns.

The result is software that can have conversations like a person or predict people’s shopping habits.

In recent years, it has become best known as the tech behind chatbots such as ChatGPT – and DeepSeek – also known as generative AI.

These programs again learn from huge swathes of data, including online text and images, to be able to make new content.

But these tools can also create falsehoods and often repeat the biases contained within their training data.

Millions of people use tools such as ChatGPT to help them with everyday tasks like writing emails, summarising text, and answering questions – and others even use them to help with basic coding and studying.

What is DeepSeek?

DeepSeek is the name of a free AI-powered chatbot, which looks, feels, and works very much like ChatGPT.

That means it’s used for many of the same tasks, though exactly how well it works compared to its rivals is up for debate.

It is reportedly as powerful as OpenAI’s o1 model – released at the end of last year – in tasks including mathematics and coding.

Like o1, R1 is a “reasoning” model. These models produce responses incrementally, simulating how humans reason through problems or ideas.

Deepseek says it has been able to do this cheaply – researchers behind it claim it cost $6m (£4.8m) to train, a fraction of the “over $100m” alluded to by OpenAI boss Sam Altman when discussing GPT-4.

It has also seemingly been able to minimize the impact of US restrictions on the most powerful chips reaching China.

DeepSeek’s founder reportedly built up a store of Nvidia A100 chips, which have been banned from export to China since September 2022. Some experts believe he paired these chips with cheaper, less sophisticated ones – ending up with a much more efficient process.

DeepSeek also uses less memory than its rivals, ultimately reducing the cost of performing tasks for users.

That combination of performance and lower cost helped DeepSeek’s AI assistant become the most downloaded free app on Apple’s App Store when it was released in the US.

The same day, it was hit with “large-scale malicious attacks”, the company said, causing the company to temporarily limit registrations.

Its website also experienced outages.

Like many other Chinese AI models – Baidu’s Ernie or Doubao by ByteDance – DeepSeek is trained to avoid politically sensitive questions.

When the BBC asked the app what happened at Tiananmen Square on 4 June 1989, DeepSeek did not give any details about the massacre, a taboo topic in China, which is subject to government censorship.

Who is behind DeepSeek?

DeepSeek was founded in December 2023 by Liang Wenfeng and released its first AI large language model the following year.

Not much is known about Mr Liang, who graduated from Zhejiang University with degrees in electronic information engineering and computer science. But he now finds himself in the international spotlight.

He was recently seen at a meeting hosted by China’s premier Li Qiang, reflecting DeepSeek’s growing prominence in the AI industry.

Unlike many American AI entrepreneurs who are from Silicon Valley, Mr Liang also has a background in finance.

He is the CEO of a hedge fund called High-Flyer, which uses AI to analyze financial data to make investment decisions – what is called quantitative trading. In 2019 High-Flyer became the first quant hedge fund in China to raise over 100 billion yuan ($13m).

In a speech he gave that year, Liang said, “If the US can develop its quantitative trading sector, why not China?”

In a rare interview last year, he said China’s AI sector “cannot remain a follower forever” of US AI development.

Asked why DeepSeek’s model surprised so many in Silicon Valley, Liang said: “Their surprise stems from seeing a Chinese company join their game as an innovator, not just a follower – which is what most Chinese firms are accustomed to.”

But it has drawn scrutiny from global leaders.

Australia has banned DeepSeek on government devices and systems, saying it poses a national security risk.

Several data protection authorities around the world have also asked DeepSeek to clarify how it handles personal information – which it stores on China-based servers.

Italy blocked DeepSeek’s app on 30 January and ordered the company to stop processing the personal information of its citizens over data protection concerns.

Why were US companies like Nvidia hit?

DeepSeek’s achievements undercut the belief that bigger budgets and top-tier chips are the only ways of advancing AI, a prospect that has created uncertainty about the future of high-performance chips.

“DeepSeek has proven that cutting-edge AI models can be developed with limited compute resources,” says Wei Sun, principal AI analyst at Counterpoint Research.

“In contrast, OpenAI, valued at $157 billion, faces scrutiny over its ability to maintain a dominant edge in innovation or justify its massive valuation and expenditures without delivering significant returns.”

DeepSeek’s lower costs roiled financial markets on 27 January, leading the tech-heavy Nasdaq to fall more than 3% in a broad sell-off that included chip makers and data centers around the world.

Nvidia’s stock price plunged 17% on Monday before it began to recover on Tuesday.

The chip maker had been the most valuable company in the world when measured by market capitalization.

But it fell to third place after Apple and Microsoft on Monday, when its market value shrank to $2.9tn from $3.5tn, Forbes reported.

DeepSeek is a privately owned company, which means investors cannot buy shares of stock on any of the major exchanges.

How has China reacted to DeepSeek’s impact?

DeepSeek’s rise is a huge boost for the Chinese government, which has been seeking to build tech independent of the West.

While the Communist Party is yet to comment, Chinese state media was eager to note that Silicon Valley and Wall Street giants were “losing sleep” over DeepSeek, which was “overturning” the US stock market.

“In China, DeepSeek’s advances are being celebrated as a testament to the country’s growing technological prowess and self-reliance,” says Marina Zhang, an associate professor at the University of Technology Sydney.

“The company’s success is seen as a validation of China’s Innovation 2.0, a new era of homegrown technological leadership driven by a younger generation of entrepreneurs.”

But she also warned that this sentiment may also lead to “tech isolationism”.

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