This week is off to a complicated start for financial markets, particularly for tech stocks.
💰💸 Don’t miss the move: SIGN UP for TheStreet’s FREE Daily newsletter 💰💸
One name that most people outside China likely didn’t know before Monday has sent shockwaves across the tech industry, pushing some of the sector’s leading stocks down. The company in question is called DeepSeek.
Founded just one year ago, DeepSeek is a privately held company owned by Chinese hedge fund High-Flyer. Now, the startup has announced an artificial intelligence (AI) model that can almost match those made by Silicon Valley leaders such as OpenAI and Google (GOOGL) , despite using what some would describe as “inferior chips,” much cheaper than those sold by competitors.
Nvidia (NVDA) stock is plunging today as speculation mounts that DeepSeek could significantly disrupt the industry. But even as prominent AI stocks continue to trend downward, other tech sector peers are rising, some of whom have high exposure to the AI market.
The DeepSeek R1: what is it, and why does it matter?
Before diving into how financial markets are responding to the DeepSeek announcement, a few questions need to be addressed. The main one is how has this early-stage startup been able to potentially disrupt the Magnificent 7 stocks?
As noted, it comes down to the AI model that tech enthusiasts and developers alike are marveling over.
Related: Experts sound the alarm on controversial company’s new AI model
Unveiled on January 20, 2025, the DeepSeek R1 is an open-source large language model (LLM) that appears highly similar in nature to ChatGPT and other popular AI models. However, multiple key differences set it apart from the models that came before it.
Not only did DeepSeek claim to have been able to train its model for a fraction of the money spent by other tech companies, it seems to have been able to build it using older, less advanced AI chips. Veteran Wall Street trader Stephen Guilfoyle provided the following summary:
“DeepSeek's open source, large language model, DeepSeek V3, which was released in December, took less than $6 million to build, using Nvidia H800 chips to train on. R1, which is built off of V3, has been developed with an aim to perform complex reasoning and is said to compete well against Open AI's 'o1.'"
- Internal messages from Meta leaders reveal fierce AI rivalry
- TikTok is back, but users sound alarm on a startling change
- New grassroots group wants to save social media from billionaires
At a time when AI CEOs such as Sam Altman of OpenAI and Dario Amodei are claiming that building AI models requires investments in the billion and even trillion-dollar ranges, DeepSeek seems to be offering an alternative that challenges these theories.
Some tech stocks are falling today; others are rising
If DeepSeek proves that AI models can be built with less-advanced AI chips, it makes sense that this news has sparked a selloff for chip stocks.
Companies such as Nvidia, Advanced Micro Devices (AMD) and Palantir Technologies (PLTR) are falling steadily today and not showing signs of a rebound as negative speculation continues to mount.
However, other tech stocks with AI market exposure are rising today, even as the DeepSeek news casts doubts over the sector. Software producers such as Salesforce, (CRM) Snowflake (SNOW,) and ServiceNow (NOW) remain in the green.
Related: Elon Musk, Sam Altman brawl over major AI deal
Meta Platforms, (META,) a leading tech company that has invested heavily in producing its own open-source AI models, is also rising today. At the same time, most of its Magnificent 7 peers trend downward.
Why is this happening? Fellow Wall Street veteran and portfolio manager Chris Versace discussed the DeepSeek phenomenon this morning, noting that he thinks “more questions need to be asked, more answers need to be given about DeepSeek and the impact of its AI model.”
That said, he adds that he thinks some of these answers will be provided when the big tech companies poised to invest billions of dollars in AI and data centers, including Microsoft MSFT, Meta, Alphabet, and Amazon AMZN, begin to report earnings soon.
Versace also provides context on the tech stocks that are rising today. “The thinking behind NOW, CRM and others like MSFT and META is [that] DeepSeek's AI model suggests we could see quicker adoption of AI and lower costs to do so, especially if other AI models emerge,” he states.
Other experts speculate that some tech stocks falling Monday may bounce back quickly as the DeepSeek hype fades away. Wedbush Securities analyst Dan Ives recently posted to X that, from his perspective, “No US Global 2000 is going to use a Chinese startup DeepSeek to launch their AI infrastructure and use cases.”
Ives highlights that he still sees Nvidia as the best way to play the AI market due to its broad use cases, flagging the current downturn as a “gold” buying opportunity.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
