US Stock Market catches 'Chinese flu': Nvidia loses $500 billion in market value as Chinese AI company DeepSeek sends 'shock waves'

Nvidia, the world's most-valuable Artificial Intelligence (AI) company, lost more than $500 billion of its market value. The emergence of a low-cost Chinese generative AI model from DeepSeek triggered a significant sell-off in U.S. tech stocks on Monday (January 27), raising concerns about U.S. dominance in the AI industry. DeepSeek, a Hangzhou-based startup, claims its chatbot can match the capabilities of leading U.S.AI models with significantly lower development costs (reportedly $5.6 million compared to billions invested by U.S. companies). Nvidia is a key chip supplier for the AI industry.
DeepSeek, whose chatbot has became the downloaded free app on Apple's US App Store, said that it spent only $5.6 million developing its model -- peanuts when compared with the billions US tech giants have poured into AI.
This announcement had a ripple effect across the tech sector:
* Other major AI players like Microsoft and Alphabet (Google's parent company) also experienced declines, while Meta bucked the trend and traded in the green.
* Broadcom, another U.S. chip maker, fell 16%, and ASML, a Dutch semiconductor manufacturing equipment company, tumbled 6.7%.
SoftBank, involved in a recent U.S. AI infrastructure venture, dropped over 8% in Tokyo, along with declines for Japanese semiconductor firms Advantest (over 8%) and Tokyo Electron (almost 5%).
Analysts and commentators have drawn parallels to the "Sputnik moment," highlighting the potential challenge to U.S. technological leadership. Concerns have been raised about the implications for capital expenditure, valuations, and the competitive landscape within the AI industry.

The situation is further complicated by upcoming earnings reports from major tech companies like Meta and Microsoft, which may provide further insights into the impact of DeepSeek's emergence. Additionally, upcoming interest rate decisions from the U.S. Federal Reserve and the European Central Bank, along with U.S. inflation data, add further layers of complexity to the market outlook. Recent trade tensions, including threats of tariffs and visa revocations, also contribute to market uncertainty.