Amid a free-ranging route of U.S. tech stocks, investors are wondering how the new announcement from Chinese firm Deepseek, of a new efficient reasoning model to be reckoned with, is going to affect the industry long-term.
It’s not just investors, either – the big question for many people looking at the global race for AI is whether Deepseek’s result really will deliver a great reasoning model for a lot lower cost than its American competitors.
In the past few cycles, the world saw double-digit losses for Nvidia, and other negative action, like Palantir dipping 6%, that’s making the bulls nervous. We’ve even seen other kinds of U.S. stocks like nuclear stocks tanking on the premise that America might be spending less on dominating AI and data center markets in the future.
“From New York to London and Tokyo, equities got hammered, with Nvidia plunging as much as 13% and the Nasdaq and S&P both falling.,” wrote a Bloomberg analyst in an email worthy of Paul Revere. “DeepSeek’s latest AI model rose to the top of the Apple’s App Store charts over the weekend, presenting a visible challenge to costlier models like OpenAI and raising questions over the hundreds of billions in planned spending on the technology by the likes of Microsoft, Meta and Alphabet.”
But it’s worth thinking a little more long-term about this, since we’re likely to have a pretty big global market for AI in the years to come.
Deepseek: Some Skepticism
People are referring to the Deepseek announcement as America’s ‘Sputnick moment’ for the AI age, when U.S. parties had a right to be spooked. However, others are asking whether the proof is in the pudding, and whether Deepseek really does have an advanced edge over the American systems. A team of writers at Bloomberg report:
“(Some) investors, like Fares Hendi at French asset manager Prevoir AM, say they’re holding onto their Nvidia shares and waiting for more information about DeepSeek’s technological promise.”
“If they really need less chips to make their model run, then yes the threat is real, it would weigh on growth and valuation,” Hendi says, as reported. “But at the moment, we’re going to take the time to really look into it.”
Then, too, some who were quoted suggested the news might be good for AI, in the long-term and from a big-picture perspective:
“It would seem to me that if you still believe that AI is going to be big, this news out of China should only make you feel better… and perhaps present you with some buying opportunities,” said Mark Malek, chief investment officer at Siebert. “To be clear, that doesn’t mean that there won’t be bumps or risks (as price seeking continues). But it should be clear that there are some stocks that will be down this morning for the wrong reasons.”
Market Speculation
Financial pros weighed in on the phenomenon, too.
“It’s safe to say that anything US-AI related was very crowded and anything tech-related in China was very under owned,” explains Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “So you are going to see a bit of a unwind of those two different crowded sides. It’ll be interesting to see if the options market picks some winners and losers.”
The Context: The U.S./China AI Race
Over the past few years, we’ve seen OpenAI and Anthropic and others continue to develop advanced reasoning systems in a way that suggested America was going to be king of the AI world for the duration.
But people close to the industry knew that the Chinese had their own research teams and systems that were likely to give other nations a run for their money.
Time will tell how much fire power Deepseek has, and whether it will continue to depress the American technology sector in the stock market.
Geopolitical Reality and Regional AI
Another argument emerges that China and the US can both reign supreme in their own hemispheres, in terms of AI systems. Some of the above quotes hint at that, too. Of course, there’s always going to be one particular model that’s better than any others, but there’s also room for customization and specialization in these systems.
It’s one thing to concede that stocks like Nvidia, which had wildly spiralled up based on U.S. dominance predictions, is going to keep its high valuation, but it’s another thing to wonder whether the Chinese will have an outside influence on American AI systems.
Like anything related to the lightning-speed transformation of LLMs in business, the U.S./China divide is going to take some time to figure out. When the dust clears, what will we see?
