Bianews reported on January 28, citing foreign media, that the rapid progress of the Chinese AI company DeepSeek posed a threat to the dominance of the U.S. tech industry, resulting in a sharp decline in the U.S. stock market on Monday.

DeepSeek, a year-old startup, made headlines last week by unveiling an AI model named R1. Similar to ChatGPT, R1 offers all familiar functionalities but at a fraction of the operational cost of popular AI models from OpenAI, Google, or Meta. The company claimed that the computational power for its base model cost only $5.6 million, in stark contrast to the hundreds of millions or billions spent by U.S. companies on AI technology. This revelation sparked market doubts about a potential massive bubble in AI computing power, leading to steep declines in chip stocks.

NVIDIA, a leading provider of AI chips, saw its shares plummet nearly 17%, erasing $595 billion from its market cap in a single day, equivalent to approximately $4.3 trillion RMB. This marked the largest single-day decline in U.S. stocks.

NVIDIA acknowledged DeepSeek's R1 model as an impressive AI advancement, despite the plunge in its shares. An Nvidia spokesperson told CNBC on Monday, "DeepSeek represents an impressive AI advancement and serves as a perfect example of extended testing time. Their work demonstrates how to leverage this technology to create new models, utilizing widely used models and computations that fully comply with export controls." Nvidia's statement suggested that DeepSeek's breakthrough would generate more work for the U.S. chipmaker's graphics processing units (GPUs). DeepSeek's mobile app topped the Apple free iPhone app rankings in both China and the U.S., and the surge in interest in DeepSeek's rapid AI progress led to a steep decline in U.S. tech stocks on Monday.

Meta announced last week that it would invest up to $65 billion in AI development this year. OpenAI CEO Sam Altman stated last year that the AI industry requires trillions of dollars in investment to support the development of chips necessary for power-hungry data centers running the industry's complex models. Marc Andreessen, a supporter of President Donald Trump and one of the world's leading tech investors, described DeepSeek as "one of the most amazing and impressive breakthroughs I've ever seen" in an article on X. Considering that the U.S. has restricted the supply of high-powered AI chips to China for years citing national security concerns, the astonishing achievements of this relatively unknown AI startup are even more shocking. This implies that DeepSeek can achieve its low-cost model using less powerful AI chips.

After the U.S. stock market closed on Monday, U.S. tech stocks, particularly chip stocks, took a significant hit. In addition to NVIDIA's 17% drop, Broadcom fell 17%, erasing $180 billion from its market cap, equivalent to approximately $1.3 trillion RMB, and pushing its market cap below the $1 trillion mark.

TSMC fell 13%, erasing $150 billion from its market cap, equivalent to approximately $1.1 trillion RMB, and pushing its market cap below the $1 trillion mark. This dragged down the overall stock market, as tech stocks represent a significant portion of the market - Truist analyst Keith Lerner noted that tech stocks account for about 45% of the S&P 500 index. "Ultimately, the U.S.'s exceptional performance is driven by technology and the leading position of U.S. companies in AI," Lerner said. "The launch of the DeepSeek model has made investors question the leading position of U.S. companies, how much they have invested in AI, and whether these investments will yield profits (or overruns)." A series of tech companies will report earnings this week, so their surprising reaction to DeepSeek could lead to market volatility in the coming days and weeks.

Meanwhile, investors are closely monitoring Chinese AI companies. Charu Chanana, Chief Investment Strategist at Saxo Bank, said, "Due to geopolitical concerns and weakening global demand, the share prices of Chinese tech companies, including new entrants like DeepSeek, are heavily discounted." DeepSeek's rise may reignite investors' interest in undervalued Chinese AI companies, providing an alternative growth story.

This news has also triggered significant shifts in Wall Street's investment in non-tech companies. In recent years, energy company share prices have surged due to the high power demand of AI data centers. However, on Monday, they all plunged. Constellation Energy (CEG), a company planning to restart the Three Mile Island nuclear power plant for AI use, fell 21% on Monday. Competitors like Vistra (VST) dropped 28%, and GE Vernova (GEV) fell 22%. Bitcoin and other cryptocurrencies also saw significant declines.

While DeepSeek's achievement is impressive, it may not be enough to offset the U.S.'s years-long leading position in AI. Furthermore, the likelihood of a massive shift of customers to Chinese startups is low. Therefore, the market sell-off may be somewhat excessive, or investors may be looking for an excuse to sell. Michael Block, Market Strategist at Third Seven Capital, said, "Time will tell if DeepSeek's threat is real - competition hinges on which technology works and how large Western companies will respond and evolve. Markets were overly complacent at the start of the Trump 2.0 era and may have been looking for an excuse to retreat - and they found a good one here. The industry also believes the company's claim of very low costs. No one really questions that, but market panic depends on whether this relatively unknown company is honest.

Although the cost savings may be significant, the R1 model, a competitor to ChatGPT, is a consumer-centric large language model. It has yet to prove its ability to handle ambitious AI functionalities required by industries that currently still require substantial infrastructure investments. Giuseppe Sette, President of AI market research firm Reflexivity, said, "With a rich talent and capital base, the U.S. remains the most promising home ground, and we expect to witness the birth of the first self-improving AI here."