Global markets have started a busy week with a lot of volatility as the little-known Chinese artificial intelligence model called ‘DeepSeek’ sparked a selloff in AI-related shares, with megacap stocks including Nvidia (NASDAQ:NVDA) the worst hit.
Chinese startup DeepSeek has launched a free assistant that uses cheaper chips and less data. This move seems to challenge the common belief in financial markets that AI will boost demand for everything from chipmakers to data centers. A bubble waiting to burst or is that a premature assumption? Let us take a look.
What is DeepSeek?
DeepSeek Artificial Intelligence Co., Ltd., started in 2023, is quickly becoming important in the world of AI. Based in China, DeepSeek focuses on pushing AI research forward. Their big goal is to create Artificial General Intelligence (AGI), which is AI that can understand, learn, and do tasks like a human in many different areas. Even though they’re just starting out, DeepSeek’s fast progress shows they’re serious about influencing the future of smart systems.
Origins and Mission
DeepSeek was founded during a pivotal time for AI, as breakthroughs in generative AI models like ChatGPT sparked global interest in advanced machine learning. Although the founders are not widely named, they reportedly include experienced professionals from China’s tech industry and academia, bringing together skills in AI research, software engineering, and strategic innovation. Their goal for DeepSeek is to move beyond the limits of narrow AI systems, which are great at specific tasks, by creating AGI that can generalize knowledge and adapt to new challenges.
The name “DeepSeek” means “deep exploration” or “in-depth pursuit,” highlighting its focus on foundational research and innovative applications. This mission aligns with China’s national strategy to lead in AI innovation, as outlined in initiatives like the Next Generation Artificial Intelligence Development Plan.
Technological Focus and Early Developments
DeepSeek focuses on several key areas in AI development:
AGI Research: DeepSeek works on technologies like large language models, reinforcement learning, and multimodal AI to create models that can think, be creative, and understand context.
Industry Applications: Besides AGI, DeepSeek makes useful AI tools for healthcare, finance, education, and self-driving systems. Their tools are being tested for things like medical diagnosis and personalized learning.
Ethical AI: DeepSeek focuses on ethical rules and safety measures to make sure AI is developed responsibly, following global standards.
Leadership and Shareholders
DeepSeek’s leadership team includes AI researchers, engineers, and executives with backgrounds in top Chinese tech companies and universities. The company hasn’t revealed its shareholders, but it’s probably supported by private investors, venture capital, and partners who share China’s AI goals. It’s possible, though not confirmed, that state-affiliated groups are involved, given the importance of AGI.
DeepSeek and its Open Source Model
Like its Western competitors Chat-GPT, Meta’s Llama, and Claude, DeepSeek uses a large-language model, which means it trains on huge amounts of text to understand everyday language.
However, unlike Silicon Valley companies that keep their models private, DeepSeek is open source. This means anyone can access its code, see how it works, and even change it.
Jim Fan, a senior research manager at Nvidia, said on X that DeepSeek is keeping the original mission of OpenAI alive by being truly open and empowering everyone.
DeepSeek claims it is the best among open-source models and competes with the most advanced closed-source models worldwide.
What Impact has DeepSeek Had on US Equities and Indices?
Over the weekend, DeepSeek created a buzz as tech analysts said the company’s AI model is better than the world’s top chatbots and costs only a tenth as much.
This saw the app surpass ChatGPT to become the No.1 app on the US app store. Released on January 20, 2025, DeepSeek gained popularity quickly thanks to countless threads on social media as well as its quality and price point.
All of these factors set DeepSeek apart from its peers.
Big Tech Rattled by DeepSeek as the Nasdaq fell 5% pre-market trading. Markets are concerned that a cheaper Chinese model could have a massive impact on US tech dominance.
According to DeepSeek, the company only spent around $5.6 million in developing their model, which is a pittance when compared to what US tech giants have poured into AI development and infrastructure.
This was reflected in companies such as NVIDIA which was down as much as 12% in pre-market trading stretching to 17% at the time of writing (four-month low). Other chipmakers such as Broadcom (NASDAQ:AVGO) were down as much as 11%.
Source: TradingView (click to enlarge)
Another company that felt the sting was Japanese firm SoftBank (TYO:9984), which is part of President Donald Trump’s AI investment drive. It was also down around 8% on Monday.
As much as we are seeing blood in the water today, this may be a knee-jerk reaction. It is still too early to declare DeepSeek as the new leader in the AI race but as one analyst put it, it certainly is a wake up call to America.
Technical Analysis – Nasdaq 100
From a technical standpoint, the Nasdaq 100 has recovered some of its pre-market losses having traded at a low of around 20660.
The Index also gapped down, so if you are taking the gap into account from Friday’s close, The Nasdaq 100 was down by as much as +- 7.5% at its lowest point.
The index appears to have found support of the 100-day MA and up about 500 points since. The bullish structure still remains intact without a daily candle close below the 20756 handle.
This does not mean that a daily candle close above this level means bulls will take charge once more but does leave the door open for a more sustained recovery and a push on toward fresh highs.
This week will bring US earnings as well, with Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL) due to announce their fourth-quarter earnings this week. Could this prove to be the catalyst to arrest this early week slump?
Nasdaq 100 Daily Chart, January 27, 2025
Source: TradingView (click to enlarge)
Support
- 21000
- 20795
- 20664 (100-day MA)
Resistance
- 21255
- 21637
- 22000