US chip-maker Nvidia led a rout in tech stocks Monday after the emergence of a low-cost Chinese generative AI model that could threaten US dominance in the fast-growing industry.

US chip-maker Nvidia led a rout in tech stocks Monday after the emergence of a low-cost Chinese generative AI model that could threaten US dominance in the fast-growing industry.

The chatbot developed by DeepSeek, a startup based in the eastern Chinese city of Hangzhou, has apparently shown the ability to match the capacity of US AI pace-setters for a fraction of the investments made by American companies.

Shares in Nvidia, whose semiconductors power the AI industry, fell more than 15 percent in midday deals on Wall Street, erasing more than $500 billion of its market value.

The tech-rich Nasdaq index fell more than three percent.

AI players Microsoft and Google parent Alphabet were firmly in the red while Meta bucked the trend to trade in the green.

DeepSeek, whose chatbot became the top-rated free application on Apple’s US App Store, said it spent only $5.6 million developing its model – peanuts when compared with the billions US tech giants have poured into AI.

US “tech dominance is being challenged by China,” said Kathleen Brooks, research director at trading platform XTB.

“The focus is now on whether China can do it better, quicker and more cost effectively than the US, and if they could win the AI race,” she said.

US venture capitalist Marc Andreessen has described DeepSeek’s emergence as a “Sputnik moment” – when the Soviet Union shocked Washington with its 1957 launch of a satellite into orbit.

As DeepSeek rattled markets, the startup on Monday said it was limiting the registration of new users due to “large-scale malicious attacks” on its services.

Meta and Microsoft are among the tech giants scheduled to report earnings later this week, offering opportunity for comment on the emergence of the Chinese company.

Shares in another US chip-maker, Broadcom, fell 16 percent while Dutch firm ASML, which makes the machines used to build semiconductors, saw its stock tumble 6.7 percent.

“Investors have been forced to reconsider the outlook for capital expenditure and valuations given the threat of discount Chinese AI models,” David Morrison, senior market analyst at Trade Nation.

“These appear to be as good, if not better, than US versions.”

Wall Street’s broad-based S&P 500 index shed 1.7 percent while the Dow was flat at midday.

In Europe, the Frankfurt and Paris stock exchanges closed in the red while London finish flat.

Asian stock markets mostly slid.

Just last week following his inauguration, Trump announced a $500 billion venture to build infrastructure for AI in the United States led by Japanese giant SoftBank and ChatGPT-maker OpenAI.

SoftBank tumbled more than eight percent in Tokyo on Monday while Japanese semiconductor firm Advantest was also down more than eight percent and Tokyo Electron off almost five percent.

  • IHeartBadCode@fedia.io
    201·
    3 days ago

    So is the rout based on the idea that the need for training hardware is much smaller than suspected even if the operation cost is the same… or is the stock market just clueless and dumb and they’re all running on vibes at all times anyway?

    Two parts here.

    1. nVidia is over valued, everyone has known this but nobody wanted to call. Someone clicking a decent model on a fraction the resources was good as anyone to call the bluff.
    2. Lots of the folks who are in it for nVidia believe that companies are going to need chips out the ass to keep up. It’s getting ahead of everyone to say “that’s no longer true”, but for reasons there’s a good chance the chip expectation isn’t as big as nVidia was painting.

    As for the model.

    This model is from China and trained there. They have an embargo on the best chips, they can’t get them. So they aren’t supposed to have the resources to produce what we’re seeing with DeepSeek, and yet, here we are. So either someone has slipped them a shipment that’s a big no-no OR we take it at face value here that they’ve found a way to optimize training.

    The neat thing about science is reproducibility. So given the paper DeepSeek wrote and the open source nature of this. Someone should be able to sit down and reproduce this in about two month (ish). If they can, nVidia is going to have a completely terrible time and the US is going to have to rethink the whole AI embargo.

    Without deep diving into this model and what it spouts, the skinny is that nVidia has their top tier AI GPUs. It has all these parts cut into the silicon that makes creating a model cost a lot less in kilowatts of power. DeepSeek says they were able to put in some optimizations that gets you a model on low kilowatts by optimizing some of the parts found only in the top tier AI GPUs.

    Blah blah example of this DeepSeek used 32 of the 132 streaming multiprocessors on their Hopper GPUs to act as a hardware accelerated communication manager and scheduler. Top tier nVidia cards for big farms do this in their hardware already in a circuit called the DPU. Basically DeepSeek found a way to use their Hopper GPUs to do the same function as nVidia’s DPUs.

    If true, it means that the hardware nVidia is popping into their top tier isn’t strictly required. It’s nice, and you’ll still get a model on less kilowatts than the tricks DeepSeek is using, but DeepSeek’s tricks means the price difference between top tier and low tier needs to be a lot closer than it is to stay competitive. As it stands with DeepSeek’s tricks (again, if they prove to be correct) is that if you’ve got a little extra time, you can get bottom tier AI GPUs and spend about the same kilowatts for what the top tier will kick out with a hint less kilowatts. The difference in cost of kilowatts between the amount you spend on low tier and amount you spend on kilowatts on top tier isn’t enough to justify the top tier’s price difference from the low tier, if time is not a factor.

    And so that brings us full circle here. If someone is able to reproduce DeepSeek’s gains, nVidia’s top tier GPUs are way over priced and their bottom tier is going to sell out like hotcakes. That’s bad for nVidia if they were hoping to, IDK, make ridiculous profit. And that is why the sudden spook in the market. I mean, don’t get me wrong, folks have been looking forward to popping nVidia’s bubble, so they’ve absolutely been hyping this whole thing up a lot more. And it didn’t help that it came top #1 on the Apple App Store.

    So some of this is those people riding the hate nVidia train. But some of it is also, well this is interesting if true. I think it’s a little early to start victory laps around nVidia’s grave. The optimizations purposed by DeepSeek have yet to be verified as accurate. And things are absolutely going to get interesting no matter the outcome. Because if the purposed optimizations don’t actually produce the kind of model DeepSeek has, where did they get it from? How did they cheat? Because then that’s an interesting question in of itself, because they aren’t supposed to have hardware that would allow them to make this. Which could mean a few top tier cards are leaking into China’s hands.

    But if it all does prove true, well, he he he, nVidia shorts are going to be eating mighty well.