Tech Stocks Take a Hit as China’s DeepSeek Unveils Breakthrough AI Model
The tech world was abuzz on Monday as news of China’s DeepSeek artificial intelligence lab’s latest achievement sent shockwaves through the market. The startup’s reasoning model, R1, outperformed OpenAI’s latest model in many third-party tests, sparking concerns about the potential implications of significantly cheaper AI models.
Nvidia Takes a Tumble
Nvidia’s stock price plummeted 17%, its steepest drop since the early days of the Covid pandemic in March 2020. The selloff wiped out almost $600 billion in market cap, the biggest one-day loss ever for a U.S. company. Other chipmakers, including Broadcom, also saw steep declines.
Earnings Season Looms
With earnings season kicking off on Wednesday, investors are eager to hear from tech giants like Meta, Microsoft, and Tesla about the impact of DeepSeek’s breakthrough on their AI infrastructure investments. The big question on everyone’s mind is: will these companies be able to reduce their capital expenditures on AI infrastructure?
Meta’s AI Ambitions
Meta CEO Mark Zuckerberg has announced plans to invest around $60 billion to $65 billion in capital expenditures in 2025 to bulk up its AI infrastructure. Given Meta’s significant spending on Nvidia GPUs, any change in the market dynamics is of deep interest to shareholders. Analysts are divided on whether DeepSeek’s open-source model poses a competitive threat or a potential boon for Meta.
Microsoft’s AI Play
Microsoft, which has invested heavily in OpenAI, is also closely tied to the AI boom. The company’s intimate relationship with ChatGPT creator OpenAI has been critical for the startup, which needs boatloads of GPUs to build and run its models. DeepSeek’s emergence has sparked debate among analysts about the potential impact on Microsoft’s capital expenditures.
Tesla’s AI Investments
Tesla CEO Elon Musk, who has a history in the AI space, expressed doubt about DeepSeek’s reportedly low budget for its models. However, he showed appreciation for the startup’s technical achievements. Tesla has been ramping up AI spending as it works toward building a fleet of self-driving cars, and Musk has talked about his company’s sizable AI investments as a key advantage.
Apple’s AI Strategy
Unlike its tech competitors, Apple is less profligate in terms of capital expenditures. The company’s big AI bet so far has been around Apple Intelligence, its suite of software for iPhones and Macs that can summarize text and generate images. Apple’s suite runs on its own chips, either on the user’s device or on the company’s servers. The company’s partnership with OpenAI to integrate ChatGPT into its Siri voice assistant is also worth watching.
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