DeepSeek’s $6M AI Disrupts Silicon Valley, Erases $2T in US Stocks

The launch of DeepSeek R1, an open-source AI language model, has shaken the U.S. stock market, triggering a significant selloff on Monday. Nvidia led the decline, with the ripple effect slashing the fortunes of several billionaires.

Venture capitalist Nic Carter took to X to highlight how the launch of the Chinese-developed AI model has shattered the belief that China would be limited to creating closed-source AI. He also pointed out that this development has diminished Silicon Valley’s dominance, leveling the playing field with global competitors.

Deepseek has completely upended the conventional wisdom around AI

– China will only do closed source / proprietary
– Silicon Valley is the global nexus of AI development, has a huge headstart
– OpenAI has an unbeatable moat
– you need to spend tens, maybe hundreds of…
— nic golden age carter (@nic__carter) January 26, 2025

Carter emphasized that DeepSeek’s emergence challenges the idea that OpenAI has an insurmountable edge in the AI industry. He argued that the model has undermined common assumptions about the scalability, value creation, and development expenses typically associated with AI models.

China’s swift launch of its AI model challenges earlier claims that the country lagged six months behind the U.S. in AI development, intensifying the competition in the global race for AI dominance.

According to Forbes, during a House Republican retreat, President Donald Trump called the release of the new AI model “a positive development” but stressed that it should serve as a “wake-up call” for U.S. industries. He praised the launch, hoping it would inspire faster and more cost-effective methods of AI development.

Additionally, Forbes reported that DeepSeek declined to address multiple sensitive topics associated with the Chinese government, including questions about the 1989 Tiananmen Square incident and criticisms of President Xi Jinping.

However, the AI model readily provided detailed responses to inquiries regarding public criticisms of U.S. figures such as former President Joe Biden and President Trump.

President Trump’s emphasis on accelerating AI development with lower costs aligns with one of the key aspects of DeepSeek’s challenge to OpenAI. DeepSeek, created for a mere $6 million, offers a stark contrast to OpenAI’s $600 million price tag for similar models. Not only is DeepSeek far more affordable to develop, but it also runs at 27 times lower operational costs.

The launch of DeepSeek has sent shockwaves through investor confidence in the costly AI models of U.S. tech giants like Nvidia and OpenAI, which is backed by Microsoft. The market reacted strongly, with Nvidia seeing a dramatic $500 billion drop in market value in just one day.

DeepSeek has now erased $2 trillion worth of market cap in US stocks.

The biggest market headwind comes when you least expect it. pic.twitter.com/vWLHob1rfG
— Adam Kobeissi (@TKL_Adam) January 27, 2025

Overall, the U.S. stock market experienced a staggering $2 trillion loss in market capitalization, driven by concerns that China’s more affordable and efficient AI technology could threaten the profitability of American AI companies.

Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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