DeepSeek's Disruption of Global Financial Markets: What You Need to Know

The launch of DeepSeek, China's AI model, temporarily disrupted global financial markets, challenging the dominance of Western tech firms. It triggered a selloff in US tech stocks and raised questions about future AI investments while highlighting China's rising influence in the AI industry.

Let's dive into how the DeepSeek launch has impacted global financial assets.

Impact of DeepSeek on global markets

Susceptible market crash triggered

On 28 January 2025, markets were shaken by China's new DeepSeek AI model, causing the Nasdaq to plunge 3.1%. Chipmakers Nvidia and Broadcom saw their stocks plummet by 17%, with Nvidia losing ~$600B in market cap—the largest one-day loss in US history. DeepSeek, an open source AI model, reportedly matches OpenAI's GPT-4 performance but was trained for just $6M—far less than its rivals.

The launch has sparked fears over China's rapid AI progress, while DeepSeek's transparency and open source nature have dethroned ChatGPT as the top app on Apple's App Store.

With US firms investing billions in AI, DeepSeek's success shows that ‘less is more’ innovation may reshape global AI competition. Investors are now questioning hefty AI spending strategies.

Nvidia's record loss

DeepSeek's debut sent shockwaves through the market, causing Nvidia's shares to plunge nearly 17% and wiping out an unprecedented $593 billion in market capitalization—the most significant single-day loss ever recorded by any company.

The downturn was sparked by the launch of DeepSeek, a Chinese AI startup that introduced a revolutionary, cost-effective AI model. Developed for under $6 million in just two months, DeepSeek's open source AI assistant is both affordable and highly efficient, challenging existing industry norms.

Following DeepSeek's launch, the Nasdaq index fell by 3.1%, with Nvidia suffering the steepest losses. Other tech giants, including Broadcom, Microsoft, and Alphabet, also declined significantly. These losses contributed to a staggering $1 trillion wipeout in market value across US exchanges. However, the stock prices recovered shortly after and rebounded to 8.9% the next day.

Japanese tech stocks hit hard

Japanese tech stocks tumbled in the last week of January, extending the losses amid a global AI stock selloff triggered by China's DeepSeek chatbot. The Tokyo market followed Wall Street's rout, where Nvidia lost 17%, erasing over $500 billion in market value. DeepSeek's R1 chatbot demonstrated capabilities rivaling US AI leaders at significantly lower investment levels, shaking confidence in heavy AI spending.

Japanese tech firms like Advantest plunged 11%, Tokyo Electron dropped 5.7%, and SoftBank, a major investor in US AI projects, fell over 5%. Investors reassessed the AI sector's potential, with National Australia Bank's Rodrigo Catril noting reduced demand for chips and infrastructure if R1's success is sustained.

The temporary fall of Nasdaq and S&P 500

Right after, The Nasdaq and S&P 500 rebounded on 28 January after a day prior's steep selloff caused by concerns over DeepSeek, a Chinese startup with a cheaper AI model that threatened Big Tech dominance. 

Nvidia (NVDA), which lost a record $589 billion in market value the previous day, surged nearly 9%, driving the tech-heavy Nasdaq Composite (^IXIC) up more than 2%. The S&P 500 (^GSPC) gained 0.9%, and the Dow Jones Industrial Average (^DJI) rose 0.3%.

The tech sector marked its sharpest two-day recovery in over two years, recovering from its worst performance since March 2020. The selloff had raised doubts about tech companies' ability to meet high earnings expectations amidst growing competition from DeepSeek.

Investors are now closely watching earnings reports from Apple (AAPL), Tesla (TSLA), Meta (META), and Microsoft (MSFT). Attention also shifts to the Federal Reserve's interest rate decision, influenced by President Trump's stricter tariff stance.

US tech stocks tumble

The recent turbulence in major tech stocks highlights the US stock market's reliance on a few dominant companies for its record-setting rally. The 'Magnificent Seven' megacaps, which account for a third of the S&P 500's weight, have fueled over half of its 2024 returns. 

Analysts warn that such concentration poses risks, as any selloff has outsized effects on market benchmarks. DeepSeek's potential to lower AI infrastructure costs could undermine Big Tech's dominance, sparking portfolio rebalancing.

While some see this as an overreaction, others view it as a potential market inflection point. Attention now shifts to upcoming earnings from Apple, Microsoft, Meta, and Tesla, which could further shape sentiment.

The China effect: DeepSeek's disruption reverberates globally

The introduction of China's DeepSeek AI model has disrupted global markets, posing a serious challenge to the dominance of established tech giants. Created at a significantly lower cost than its Western competitors, DeepSeek has demonstrated performance on par with leading platforms like ChatGPT. 

This development has prompted analysts to reevaluate the future trajectory of AI investments. DeepSeek's affordability threatens to reduce reliance on expensive, high-performance chips and large-scale data centers, potentially eroding the competitive edge of US technology firms.

In response to this disruption, tech giants such as Meta and Microsoft are doubling their AI investments to protect market leadership. Yet, the rapid rise of DeepSeek highlights China's expanding influence in the global AI landscape, sparking concerns about whether Western nations can sustain their technological supremacy in an increasingly competitive environment.

Are sky-high market caps at risk?

China's DeepSeek AI model, developed at a significantly lower cost than its Western counterparts, has emerged as a formidable contender in the artificial intelligence space. 

Offering performance on par with leading models like ChatGPT, DeepSeek has sparked a wave of uncertainty among investors. Its affordable approach threatens to disrupt the AI ecosystem, potentially reducing the demand for high-end chips and expansive data centers—key revenue drivers for major US tech firms.

In response, industry giants such as Meta and Microsoft are doubling down on their AI investments, determined to protect their market dominance. However, DeepSeek's rapid progress highlights China's expanding influence in the AI domain, raising pressing questions about the West's ability to sustain its edge in technological innovation. 

This shift could mark a turning point for the global AI landscape, compelling businesses and policymakers to reassess strategies in an increasingly competitive environment.

Is DeepSeek's impact here to stay?

DeepSeek's launch shook the AI market, offering a cheaper alternative to traditional models. While the initial market reaction was intense but short-lived, its potential to reshape AI investments and challenge big tech's dominance could have lasting effects, forcing companies to rethink their strategies.