DeepSeek’s AI ‘Sputnik Moment’ Sparks Massive Tech Selloff, Wiping $593 Billion Off Nvidia’s Market Value
NEW YORK/LONDON/SINGAPORE, Jan 27 (Reuters) – Global tech markets were rocked on Monday as investors dumped AI-related stocks, triggered by the emergence of a low-cost Chinese artificial intelligence model that threatens to reshape the competitive landscape. The selloff erased an unprecedented $593 billion from Nvidia’s market value, marking the largest one-day loss for any company in Wall Street history.
The disruption came after DeepSeek, a Chinese AI startup, unveiled a free AI assistant that claims to be significantly more efficient and cost-effective than existing models. Within days, DeepSeek’s AI surpassed OpenAI’s ChatGPT in downloads from Apple’s App Store. This triggered a chain reaction in global markets, with the Nasdaq Composite Index (.IXIC) tumbling 3.1% and semiconductor stocks experiencing their worst decline since March 2020.
Nvidia’s Record-Breaking Market Cap Collapse
Leading the losses, Nvidia (NVDA.O) plunged nearly 17%, with its market capitalization shrinking by a staggering $593 billion—more than double its previous one-day record loss from last September. Chipmaker Broadcom Inc. (AVGO.O) followed closely, shedding 17.4%, while AI powerhouses Microsoft (MSFT.O) and Google parent Alphabet (GOOGL.O) dropped 2.1% and 4.2%, respectively.
The broader Philadelphia Semiconductor Index (.SOX) plummeted 9.2%, with Marvell Technology (MRVL.O) suffering the worst decline, falling 19.1%. The impact rippled across global markets, with Japan’s SoftBank Group (9984.T) closing down 8.3% and Europe’s ASML (ASML.AS) losing 7%.
AI Industry Disruption: ‘DeepSeek’s Sputnik Moment’
DeepSeek’s rapid ascent has been likened to AI’s ‘Sputnik moment’—a reference to the Soviet Union’s 1957 launch of Sputnik, which shocked the world and spurred the space race. Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek’s latest model as “one of the most amazing and impressive breakthroughs” he has seen, noting its potential to upend the AI industry.
The startup’s flagship model, DeepSeek-V3, was trained using Nvidia’s H800 chips, costing under $6 million—an astonishingly low investment compared to industry standards. Meanwhile, its newly released DeepSeek-R1 reportedly operates 20 to 50 times cheaper than OpenAI’s o1 model, according to the company’s WeChat announcement.
“If it’s true that DeepSeek is the proverbial ‘better mousetrap,’ that could disrupt the entire AI narrative that has helped drive markets over the last two years,” said Brian Jacobsen, chief economist at Annex Wealth Management. “It could mean less demand for high-powered AI chips, reduced investment in massive power infrastructure, and decreased need for large-scale data centers.”
AI Hype Meets Reality: Investor Sentiment Turns Cautious
The AI-driven stock rally of the past 18 months has been fueled by soaring investments and high expectations for future growth. Just last week, AI stocks surged after former U.S. President Donald Trump announced a private-sector initiative, Stargate, aimed at securing $500 billion for AI infrastructure. Backed by SoftBank, OpenAI, and Oracle, the venture was expected to further cement the dominance of U.S. AI firms.
However, DeepSeek’s emergence is now forcing a reassessment of market valuations and competitive dynamics. Even as Trump suggested the development could be a “wake-up call” for American AI innovation, investors scrambled to reassess their holdings.
Utility stocks, which had surged in anticipation of increased energy demand for AI-driven data centers, also took a hit. Vistra (VST.N) plummeted 28.3%, Constellation Energy (CEG.O) fell 20.8%, and NRG Energy (NRG.N) lost 13.2%.
Nvidia Selloff: A Buying Opportunity?
Despite Monday’s dramatic losses, some market analysts view the pullback as an opportunity to buy high-quality tech stocks at a discount. Daniel Morgan, senior portfolio manager at Synovus Trust Company, dismissed the panic-driven selloff as an overreaction.
“DeepSeek’s model is designed for mobile phones and PCs, not data centers,” Morgan explained. “It competes more directly with ChatGPT, Meta (META.O), and Alphabet’s Gemini, rather than Nvidia and other chipmakers. The real money in AI still lies in providing chips for high-performance computing.”
As the AI landscape shifts, Nvidia’s future remains uncertain. The stock, which soared 171% in 2024 and 239% in 2023, was trading at 56 times its earnings before the selloff. By the close of Monday, Nvidia had fallen to $118.42 per share, down 11.8% year-to-date. However, after-hours trading saw a modest 2.5% rebound, hinting at investor confidence in the chipmaker’s long-term prospects.
The Future of AI Investment: A Crossroads Moment
With DeepSeek shaking up the AI race, the industry faces a pivotal moment. Will the U.S. AI giants adapt and maintain their dominance, or is this the beginning of a fundamental market shift?
For now, the battle between cost-efficiency and computational power is intensifying, with investors closely watching how AI companies respond to this new competitive reality.
