Tech stocks decline amid concerns over China's DeepSeek and its impact on the U.S. AI competition

The Chinese artificial intelligence firm has received a lot of attention in recent weeks as a rapidly rising competitor to OpenAI's ChatGPT, Google's Gemini, and other top AI tools.

Earlier on Monday, DeepSeek surpassed rival OpenAI to become the most-downloaded free software in the United States on Apple's software Store, dethroning ChatGPT in favor of DeepSeek's AI Assistant. It contributed to a massive selloff in global technology markets.

DeepSeek reportedly emerged from a Chinese hedge fund's AI research unit in April 2023 to focus on large language models and the pursuit of artificial general intelligence, or AGI — a branch of AI that equals or surpasses human intellect on a wide range of tasks, which OpenAI and its competitors claim to be pursuing quickly.

The hype about DeepSeek began to grow last week, when the firm unveiled R1, a reasoning model that competes with OpenAI's O1. It is open-source, which means that any AI developer may use it, and it has quickly risen to the top of app stores and industry leaderboards, with customers applauding its performance and reasoning ability.

Nvidia, the semiconductor giant whose AI technology has helped it become one of the world's most valuable businesses, had its stock tumble more than 13% by late Monday morning. Rival chipmakers, including Arm and Broadcom, also fell, pushing down the major indices. By late morning, the Nasdaq, which is dominated by technology, had fallen about 600 points, or roughly 3%.

Google, Microsoft, Apple, Meta, and other major tech firms have put billions of dollars into developing artificial intelligence capabilities, resulting in a Silicon Valley arms race. However, investors are already questioning these exorbitant investments: DeepSeek claims that training their models is less expensive, and that its open-source AI assistant makes use of less powerful hardware than competition models.

According to Giuseppe Sette, head of AI market research firm Reflexivity, the underlying technology for DeepSeek seems to be "extremely bullish in the long-term" since it might serve as a roadmap for other AI startups moving forward.

"DeepSeek has taken the market by storm by doing more with less. In layman terms, they activate only the most relevant portions of their model for each query, and that saves money and computation power. This shows that with AI the surprises will keep on coming in the next few years," Sette wrote in a note Monday.