Tech shares plunge as Donald Trump says new Chinese AI firm DeepSeek is "wake up call"

28 January 2025, 08:31

The emergence of Chinese artificial intelligence firm DeepSeek rocked US tech giants' stocks on Monday night amid concerns that the new low-cost AI model would upend their dominance.

Tech shares plunged and chip maker Nvidia suffered falls of nearly 17 per cent on Monday, as President Donald Trump warned DeepSeek's emergence was a "wake up call" for existing AI giants.

Nvidia's drop in share price marked the biggest ever one-day loss in market value on Wall Street, of about 589 billion dollars.

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Just a week after its launch, DeepSeek has quickly become the most downloaded free app in the US.

It claims that its large language AI model was made at a fraction of the cost of its rivals, including OpenAI, which uses more expensive Nvidia chips to train its systems on vast swathes of data.

The announcement has raised significant doubts over the future of US firms' dominance in AI, prompting the sharp falls for Nvidia, as well as tech giants including Microsoft, Meta and Google parent Alphabet, which are all pouring billions into the technology.

The S&P 500 dropped 1.5 per cent, dragged down in large part by the fall from Nvidia.

DeepSeek's claims also affected tech stocks elsewhere, with Dutch chip making company ASML falling 7 per cent and Japan's Softbank dropping 8.3 per cent.

The FTSE 100 appeared resilient on Tuesday morning, rising 0.21per cent in early trading.

Analysts said the announcement from DeepSeek is especially significant because it indicates that Chinese firms have innovated faster despite the US putting controls on exports of Nvidia's most powerful chips to the country.

The news marks a sharp change in fortunes for established AI companies, whose stocks have soared in value in recent years amid hopes they would reshape the world economy and deliver huge profits.

Mr Trump said he was not concerned about the breakthrough, adding that the emergence of DeepSeek could be "a positive" and a "wake-up call" for the US.

"If you could do it cheaper, if you could do it (for) less (and) get to the same end result, I think that's a good thing for us," he told reporters on board Air Force One.

Mr Trump also said he wanted to bring in trade tariffs that are "much bigger" than the 2.5% that some reports had suggested were favoured by incoming Treasury Secretary Scott Bessent.

"I have it in my mind what it's going to be but I won't be setting it yet, but it'll be enough to protect our country," Mr Trump told reporters on Monday night.

It comes as DeepSeek said it was the victim of a cyber attack on Monday that prevented users from registering on its site.

The company said it had suffered "large-scale malicious attacks" on its services but that registered users were able to log in normally.

Kathleen Brooks, research director at investment firm XTB, said: "How does Trump react to a threat against the US AI dominance? He threatens wide-ranging tariffs on foreign-produced semiconductors, pharma and metals.

"Since Nvidia uses chips produced by TSMC in Taiwan, it could be hit by the tariffs.

"However, the 17 per cent drop in its share price on Monday, which led to a record 589bn dollar loss in its market cap, may have gone too far and there are early signs in European trading that Nvidia could stage a recovery on Tuesday."