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On Wed, 12 Feb, 8:08 AM UTC
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DeepSeek AI shakes Up tech stocks: What it means for Silicon Valley
DeepSeek claims to have built its AI platform cheaper than Meta, Google, and OpenAI, raising fears of overspending. However, US tech stocks soon recovered.Stock prices of some of Silicon Valley's most prominent companies fell sharply after a rapid decline in tech stocks following the announcement of a new AI tool from Chinese startup DeepSeek, a competitor to ChatGPT, on January 27. Simultaneously, bond yields decreased, leading to a drop in mortgage rates as bond prices rose. Nvidia, a leading AI chip manufacturer, saw its shares decline by 17%, wiping $590 billion off its market value. Despite this, DeepSeek still utilises Nvidia chips for its AI platform, albeit in smaller quantities than other US companies. Many investors who offloaded Nvidia shares may have overlooked this fact. Nevertheless, Nvidia remains a dominant force in AI technology. DeepSeek claims to have developed its AI platform at a significantly lower cost than major firms such as Meta, Google, and OpenAI. This triggered concerns that these tech giants were overspending and potentially heading towards financial strain. But the apprehension was short-lived, as US tech stocks swiftly rebounded. Following the initial excitement, doubts arose regarding DeepSeek's budget claims. Wedbush analyst Dan Ives dismissed the assertion as "likely a fictional story." Also Read : Prince Harry's wellness firm faces backlash over 'predatory,' and 'toxic- culture by customers, ex-employees Similarly, Bill Stein, co-founder of Primary Digital Infrastructure, questioned the feasibility of DeepSeek's budget. He told CoStar News, "I don't see how 4-year-old processors will compete with Nvidia's new ones. It doesn't make sense." The US Federal Reserve's recent decision to keep interest rates unchanged was not influenced by the turmoil in tech stocks but rather by broader economic uncertainty and inflationary pressures. Unless there is a major financial crisis akin to the 2008 crash, the Fed typically does not adjust rates in response to stock market fluctuations. DeepSeek's emergence has unexpectedly affected power stocks. Reports indicate that the Chinese AI model consumes significantly less energy than its US counterparts, causing a decline in power stocks that had been rising due to increasing data centre demand. Unlike the temporary decline in tech stocks, the implications of reduced energy consumption could be more long-lasting. A recent study by Lawrence Berkeley National Laboratory forecasts that data centres could account for 6.7% to 12% of total US electricity consumption by 2028, up from 4.4% in 2023. Also Read : Donald Trump plans to announce steel and aluminium tariffs for 'everybody' Meta's CEO, Mark Zuckerberg, maintains that heavy investment in data centres will still offer companies a strategic advantage in the long run, although he acknowledges that it is too early to draw definitive conclusions. 1. What is Freddie Mac? Freddie Mac (Federal Home Loan Mortgage Corporation) is a government-sponsored enterprise (GSE) in the US. It buys mortgages from lenders to provide them with additional funds, enabling them to issue more loans to homebuyers. 2. How is DeepSeek different from ChatGPT? DeepSeek is a Chinese AI tool designed to be more cost-effective and energy-efficient, positioning itself as a competitor to ChatGPT, which is developed by OpenAI and primarily focuses on generating human-like text responses.
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Will DeepSeek Create Deep Cuts In Mortgage Rates? Has Chinese AI Innovator Disrupted Silicon Valley's Tech Titans, Or Is It Just A Temporary Blip? - Meta Platforms (NASDAQ:META), NVIDIA (NASDAQ:NVDA)
Americans have been praying for lower mortgage rates. They had no idea that a Chinese AI app could help them obtain them. A knee-jerk selloff in tech stocks on Jan. 27 prompted by a new Chinese AI tool by startup DeepSeek that rivals Chat GPT caused some of Silicon Valley's most prominent companies to see their stock price plummet overnight. Bond yields also fell that day, and the byproduct of lower bond yields -- resulting from bond prices increasing -- was to see mortgage rates drop as well. Don't Miss: Nancy Pelosi Invested $5 Million In An AI Company Last Year -- Here's How You Can Invest In Multiple Pre-IPO AI Startups With Just $1,000 Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing -- you can become an investor for $0.80 per share today. Although the mortgage rate decline was modest -- falling to 6.96% -- after the tech stock selloff, the pattern seems to have persisted, as the following week, according to Freddie Mac, it fell again to 6.89%. "Home shoppers who already have an offer accepted can take advantage of this reprieve, but I don't expect it to mean lasting mortgage rate relief for home shoppers," realtor.com Chief Economist Danielle Hale said. "That will come from broader economic stability and ongoing improvement in inflation." One of the tech titans to hit the worst was AI chip innovator Nvidia NVDA, which saw shares plunge 17% and its market cap drop by $590 billion. However, the fact that DeepSeek still used Nvidia chips to build its AI platform, according to the New York Times -- albeit in fewer numbers than their US counterparts -- might have been missed by those who suddenly sold their shares in the company. Ultimately, the US-based chip maker is still the kingmaker regarding AI technology. Trending: Deloitte's fastest-growing software company partners with Amazon, Walmart & Target - Many are rushing to grab 4,000 of its pre-IPO shares for just $0.26/share! Why US Tech Stocks Tanked After DeepSeek Debuted DeepSeek claims to have built its AI platform for less than behemoths Meta META, Google, and Open AI, raising fears that the established AI players were wildly overspending, setting them up for a fall. The concern appeared short-lived as US tech stocks recovered shortly after the initial crash. After the initial DeepSeek hoopla, the narrative concerning their low-budget creation drew skepticism. Wedbush analyst Dan Ives called it "likely a fictional story." Bill Stein, chief investment officer and co-founder of Primary Digital Infrastructure, also questioned DeepSeek's budgetary claims. "I don't see how 4-year-old processors are going to compete with the newest processors from Nvidia," he told CoStar News. "It doesn't make sense." Trending: Built on the trusted network of Fortune 500 companies, this blockchain company partners with Salesforce to uproot lengthy and expensive B2B transactions, and you can invest with just $100. How Will DeepSeek Affect Interest Rates? Not much more than they already have. The Fed's recent move to leave rates unchanged was not a reflection of the turmoil with tech stocks but a response to the general uncertainty about the economy and inflation. Certainly, barring a dramatic change, as seen during the financial crash, the Fed has a policy of not reacting to the stock market. The Wider Ramifications of DeepSeek Power stocks have been an unlikely victim of DeepSeek's arrival. Media reports said that the Chinese generative AI model was trained using far less power than its American competitors, which directly affected the price of power stocks that were previously soaring thanks to increased data center usage. See Also: 'Scrolling To UBI' -- Deloitte's #1 fastest-growing software company allows users to earn money on their phones. You can invest today for just $0.26/share with a $1000 minimum. Unlike the tech stock drop-off, the ramifications of requiring less power than initially anticipated could be longer-lasting. A recent report from Lawrence Berkeley National Laboratory found that data centers could consume between 6.7% and 12% of total US electricity by 2028, compared with 4.4% in 2023. "I continue to think that investing very heavily...is going to be a strategic advantage over time," Meta CEO Mark Zuckerberg said on the company's earnings call late last month. "It's possible that we'll learn otherwise at some point, but I just think it's way too early to call that." Read Next: According to Juniper Research, the total value of B2B cross-border payments stored on the blockchain is projected to exceed $4.4 trillion -- Join the first company to bring blockchain payments to Salesforce early with just $100. Inspired by Uber and Airbnb - Deloitte's fastest-growing software company is transforming 7 billion smartphones into income-generating assets - with $1,000 you can invest at just $0.26/share! METAMeta Platforms Inc$714.86-0.35%Overview Rating:Speculative50%Technicals Analysis660100Financials Analysis400100WatchlistOverviewNVDANVIDIA Corp$132.88-0.52%Market News and Data brought to you by Benzinga APIs
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Chinese startup DeepSeek's AI tool announcement causes temporary tech stock volatility and impacts mortgage rates, raising questions about AI development costs and energy consumption in the tech industry.
On January 27, the announcement of a new AI tool by Chinese startup DeepSeek sent shockwaves through Silicon Valley, causing a sharp decline in tech stocks and unexpectedly impacting mortgage rates 1. DeepSeek, positioning itself as a competitor to ChatGPT, claims to have developed its AI platform at a significantly lower cost than major firms like Meta, Google, and OpenAI 12.
The news triggered a sell-off in tech stocks, with AI chip manufacturer Nvidia experiencing a 17% decline, wiping $590 billion off its market value 1. However, this downturn was short-lived as US tech stocks swiftly rebounded 1. Interestingly, DeepSeek still utilizes Nvidia chips for its AI platform, albeit in smaller quantities than other US companies 2.
Industry experts have expressed skepticism about DeepSeek's claims. Wedbush analyst Dan Ives dismissed the assertion of lower development costs as "likely a fictional story" 12. Bill Stein, co-founder of Primary Digital Infrastructure, questioned the feasibility of DeepSeek's budget, stating, "I don't see how 4-year-old processors will compete with Nvidia's new ones. It doesn't make sense" 1.
The tech stock sell-off had an unexpected ripple effect on the housing market. As bond yields fell, mortgage rates experienced a modest decline, dropping to 6.96% and subsequently to 6.89% according to Freddie Mac 2. However, experts caution that this may not lead to lasting mortgage rate relief 2.
DeepSeek's emergence has also affected power stocks due to reports that the Chinese AI model consumes significantly less energy than its US counterparts 1. This development could have long-lasting implications for the energy sector, as data centers are projected to account for 6.7% to 12% of total US electricity consumption by 2028, up from 4.4% in 2023 12.
Despite the market turbulence, industry leaders remain committed to heavy investment in AI infrastructure. Meta CEO Mark Zuckerberg maintains that substantial investment in data centers will provide companies with a strategic advantage in the long run, although he acknowledges it's too early to draw definitive conclusions 12.
The Federal Reserve's recent decision to keep interest rates unchanged was not influenced by the tech stock volatility but rather by broader economic uncertainty and inflationary pressures 1. This underscores the complex interplay between technological advancements, market dynamics, and economic policy.
As the AI landscape continues to evolve, the DeepSeek incident highlights the potential for disruptive innovations to emerge from unexpected quarters, challenging established players and reshaping market dynamics in the tech industry and beyond.
Reference
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Chinese startup DeepSeek's efficient AI model sparks market volatility, causing a shift from hardware to software stocks and raising questions about the future of AI infrastructure investments.
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Chinese startup DeepSeek's cost-efficient AI models are reshaping the tech landscape, with JPMorgan analysts forecasting impacts on major players like Nvidia, Intel, and tech giants.
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President Trump unveils a massive AI investment package as Chinese startup DeepSeek demonstrates cost-effective AI capabilities, sparking debates on U.S. technological dominance and AI development strategies.
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21 Sources
Meta Platforms faces stiff competition from Chinese AI startup DeepSeek, raising questions about the future of AI chip demand and Meta's position in the AI race.
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Nvidia's stock has largely recovered from the January selloff triggered by Chinese AI startup DeepSeek, but lingering concerns about AI chip demand and emerging competitors persist in the rapidly evolving AI market.
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