Heading into the week of January 27th, the stock market was looking up, with the S&P 500 rising 1.75%. But investors were in for a shock on Monday when a new large language model, capable of competing with ChatGPT and OpenAI’s other products, was released by a company called DeepSeek in China. This new model is open-source, meaning it is free to use and modify unlike ChatGPT. The news sent the tech-heavy NASDAQ plummeting, as this new AI is significantly cheaper, more efficient, and comparable to ChatGPT at just 5-10% of its cost. It is also easier to use than the major players in the U.S. market. In total, the NASDAQ’s market cap dropped by $1 trillion. The stock that took the biggest hit on Monday was NVIDIA, which fell 17% and lost a record 600 billion in its market cap. Overall, this Chinese AI caused a mass sell-off, with investors fearing that the U.S. had lost its edge in the so-called “AI race.”
China’s DeepSeek claims it can rival U.S.-based OpenAI and Zuckerberg’s Meta AI model by focusing on the budget aspect. This has sent Silicon Valley into what’s being described as “full-blown crisis mode” (Mario Nawfal), with Meta even setting up four “war rooms” to analyze how this new AI managed to break training costs and, specifically, what type of data was used to achieve this.
What does this mean for companies like Apple?
Apple is a prime example of a company who benefited from this news. While many stocks have been plummeting, Apple has risen more than 4% this week. Why? Because Apple has kept its AI spending relatively low, which positions it as a potential outperformer for those concerned about AI. As long as the U.S. doesn’t develop a successful counter to China’s new system—if that even happens—companies like Apple, which are less exposed to AI spending, may benefit. Other companies that have also seen an above-average rise include enterprise software giants like Microsoft and Adobe.
Why YOU should care
Even if you’re not directly involved in the stock market, the average American should keep a close eye on this for several reasons. While everyone is watching how U.S. billionaires will respond, DeepSeek’s AI could ultimately benefit working-class Americans. The drop in tech stocks, which has already led to rising bond yields, could result in lower mortgage rates. This is particularly significant for first-time homebuyers, who could see substantial opportunities during times like these. Additionally, DeepSeek’s cheaper AI model could help businesses operate more efficiently, potentially leading to lower prices for services.
Week of February 3rd update
Over the weekend, more bad news for the stock market came as President Trump announced tariffs on Mexico, Canada, and China. This announcement sparked retaliation from those countries, which said they would impose tariffs on the U.S. in response. All of this had a negative impact on the stock market, as seen on Monday morning, with the Dow dropping 600 points.
Overall Impact
In the coming months, we will see the ripple effects of DeepSeek and its AI across the tech world. It remains to be seen how major companies will respond—whether they will bow to DeepSeek’s advancements or step up their own AI innovations. If we had to make a prediction, we’d say U.S. companies should respond strongly to ensure they remain competitive and not give up a potential political shift to the Chinese. If competition forces the U.S to step it up it can be seen as a win but if they fail to do so this current stock crash can affect heavy tech layoffs and economic instability for an uncertain period of time.
