Chinese AI Breakthrough Shakes Wall Street: A New Challenge for U.S. Tech Giants

A new Chinese AI company is rattling Wall Street, threatening to disrupt the artificial intelligence boom with a low-cost, highly competitive technology.

Wall Street’s top tech stocks are facing a sharp decline as a new competitor from China threatens to shake up the artificial intelligence (AI) market. The S&P 500 dropped by 1.7% in midday trading on Monday, marking its worst performance in over a month. Among the hardest-hit were Big Tech stocks, with Nvidia falling 14.4%, dragging the Nasdaq down 2.8%.

In contrast, stocks outside the AI sector performed better. The Dow Jones Industrial Average, which has fewer tech-focused companies than the S&P 500 or Nasdaq, was down only 0.1%. At one point, the Dow was even on track for a small gain earlier in the day.

The major market jolt came from China, where a company named DeepSeek announced that it had developed a large language model capable of rivaling U.S. AI leaders at a fraction of the cost. DeepSeek’s app quickly surged to the top of Apple’s App Store rankings, a significant achievement considering the U.S. government’s restrictions on Chinese companies’ access to cutting-edge AI chips.

Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek’s breakthrough as AI’s “Sputnik moment,” comparing it to the Soviet Union’s launch of its satellite in the 1950s that ignited the space race. He praised DeepSeek’s R1 model as one of the most impressive advancements he had ever seen, especially since it is open-source.

However, skepticism surrounds DeepSeek’s claims, particularly regarding its ability to bypass chip restrictions. Dan Ives, an analyst with Wedbush Securities, pointed out that questions remain about how DeepSeek managed to sidestep U.S. sanctions on AI chips and what hardware it used for its new model.

Despite the uncertainty, DeepSeek’s announcement has had a significant impact on the global stock market. In Amsterdam, Dutch chip supplier ASML saw a 6.6% drop in its share price. In Tokyo, Japan’s SoftBank Group lost 8.3%, reversing gains made after a major announcement about investing in AI infrastructure. On Wall Street, Constellation Energy’s shares plummeted by 19% after the company revealed plans to restart the Three Mile Island nuclear plant to supply power to Microsoft’s data centers.

The widespread concern about DeepSeek’s potential to disrupt the AI landscape has caused many investors to shift their focus to bonds, traditionally seen as a safer investment compared to stocks. The markets remain on edge, awaiting more details on how the competition from China will affect the future of artificial intelligence.