DeepSeek, the China-based AI startup, has not only emerged as a major competitor to ChatGPT but has also triggered significant disruptions in global financial markets. In recent months, the company’s rise has contributed to one of the largest stock market declines, with Nasdaq futures dropping over 3% and tech giants like NVIDIA losing 14% in premarket trading. The impact has spread to Europe as well, where chipmaker ASML saw its shares plummet by a staggering 11%.

The announcement of DeepSeek’s advancements has sent shockwaves through the global AI industry, raising questions about the massive investments governments are pouring into artificial intelligence. Just last week, the United States approved a $500 million budget over four years to fund Stargate, a project aimed at solidifying the country’s position as a leader in AI and technology. However, DeepSeek’s rapid progress has cast doubt on whether such investments will be enough to maintain a competitive edge.

How can the launch of a Chinese language model create such a massive ripple effect across global stock markets? The answer lies in DeepSeek’s unprecedented rise to the top of the AI industry — a feat it achieved in just one week. In that short time, it has outperformed well-known models like Llama 3.1 and GPT-4o, delivering remarkable results while using significantly less computing power than giants like OpenAI, Google, or Meta.

DeepSeek’s success has raised serious questions about the current trend of massive investments in AI hardware. The company has demonstrated that it’s possible to develop a highly powerful open-source large language model (LLM) with relatively modest processing capabilities. This breakthrough has sent shockwaves through the tech sector, leading to a 14% drop in NVIDIA’s stock value even before the market opened. Investors and industry leaders are now rethinking the necessity of such colossal spending on AI infrastructure.

DeepSeek Shakes Up the Market

The impact of DeepSeek’s rise was felt even before the U.S. stock market opened. According to Bloomberg, more than 200,000 Nasdaq 100 futures contracts were traded just 15 minutes before the opening bell — a staggering jump compared to the 30-day average of around 50,000 transactions in the same timeframe.

Experts suggest that investors in major tech companies view DeepSeek as a formidable competitor, especially given its origins in China, a market often seen as a rival to the West. The situation worsened over the weekend, when the markets were closed, as prominent figures in the global AI community praised DeepSeek’s achievements as one of the most impressive breakthroughs in the industry.

Many believe DeepSeek could be the catalyst that bursts the AI bubble in the United States. Until now, big tech companies have been riding high on future promises and developments centered around raw computing power. However, with a Chinese competitor achieving superior results using far fewer resources, the foundation of this narrative is crumbling. Investors are now questioning whether Western AI advancements are as cutting-edge as they once believed.