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The week started badly for the US market: before the opening of the markets, the shares of the “Magnificent 7” were in the red. Nvidia shares, for example, fell by more than 11%, Amazon stock by 4.4%, Tesla by 3.8%, Alphabet by 3.7% and Microsoft by 2.5%. Index futures also fell.
The main reason for this sudden change in market sentiment seems to be the emergence of a new rival to ChatGPT: Chinese startup DeepSeek. But what spooked investors was not the increased competition, but how these developers from China managed to create their product.
DeepSeek’s 671 billion-parameter DeepSeek model reportedly needed only 2,048 Nvidia H800 chips and less than $6 million to train, far less than U.S. tech giants spend. This led to fears of falling demand for Nvidia chips, which caused widespread panic across the market.
But the story isn’t as clear-cut. DeepSeek’s AI model wasn’t built from scratch but leveraged existing technology and models. Most importantly, while DeepSeek bought 10,000 Nvidia chips, hyperscalers have purchased much more, calling into question the AI capital expenditure narrative.
What we see now in the market could be an overreaction, and some may try to take advantage by “buying the dip.” However, jumping in at this point could be risky, and betting everything on a rebound could backfire. Then again, no risk, no reward.
One thing is certain: competition in the sector will continue to intensify. The big question now is how, or if, the US government will respond. Some speculate that Trump’s team may consider DeepSeek a threat to national security and take steps to ban its use in the country…
Other major market movers this week will be Tesla, Microsoft, Meta, and Apple’s quarterly earnings reports and the Fed’s interest rate decision on Wednesday. Any negative surprises could push the risk-on rally even further back, triggering fresh stock pullbacks.
