Dow Jones Slides, Nvidia Plunges 13% On DeepSeek AI Threat From China

The Dow Jones Industrial Average (DJI) and Nvidia (NVDA) stock took a significant hit on Monday, January 27, 2025, as investors reacted to the emergence of DeepSeek, a Chinese AI startup that has developed cost-efficient AI models. The DJI fell for the tenth consecutive day, while NVDA stock plunged 13% in premarket trading. This article explores the implications of DeepSeek's success on the broader AI industry, particularly in terms of innovation, competition, and the future of AI chip development.



The emergence of DeepSeek's AI models, particularly DeepSeek-V3 and R1, has significantly impacted the competitive landscape for Nvidia and other AI chip manufacturers. DeepSeek's models are designed to operate efficiently using less powerful hardware, which could reduce demand for high-performance computing hardware like NVDA's GPUs. DeepSeek-V3 is around 45x more efficient in training than its competition, and the DeepSeek R1 API is currently 27x cheaper than OpenAI's o1 for a similar level of quality (Emanuel, 2025).

The stunning achievement from a relatively unknown AI startup becomes even more shocking when considering that the United States for years has worked to restrict the supply of high-power AI chips to China, citing national security concerns. That means DeepSeek was able to achieve its low-cost model on under-powered AI chips.

US tech stocks got hammered Monday morning. NVDA, the leading supplier of AI chips, whose stock more than doubled in each of the past two years, fell 12% in premarket trading. Meta (META) and Alphabet (GOOGL), Google’s parent company, were also down sharply, as were Marvell, Broadcom, Palantir, Oracle and many other tech giants. That dragged down the broader stock market, because tech stocks make up a significant chunk of the market — tech constitutes about 45% of the S&P 500, according to Keith Lerner, analyst at Truist. S&P 500 futures were on pace to fall 2.4% at the market open, and the tech-heavy Nasdaq was set to open 4.2% lower. The Nasdaq hasn’t closed 4% lower since September 2022. The Dow was on pace to open about 400 points, or 0.9%, lower.

The bottom line is the US outperformance has been driven by tech and the lead that US companies have in AI. The DeepSeek model rollout is leading investors to question the lead that US companies have and how much is being spent and whether that spending will lead to profits (or overspending).

This week kicks off a series of tech companies reporting earnings, so their response to the DeepSeek stunner could lead to tumultuous market movements in the days and weeks to come. But one achievement, albeit a gobsmacking one, may not be enough to counter years of progress in American AI leadership. And a massive customer shift to a Chinese startup is unlikely. So the market selloff may be a bit overdone — or perhaps investors were looking for an excuse to sell.

In conclusion, the emergence of DeepSeek's AI models has created a more competitive landscape for Nvidia and other AI chip manufacturers. To maintain their market position, these companies should focus on innovation, diversification, partnerships, and strategic pricing. DeepSeek's success could influence the long-term CapEx plans and profit margins of major tech companies by reducing training costs, increasing profit margins, and potentially shifting AI strategies. The broader AI industry may experience increased innovation, competition, and a shift in AI chip development due to DeepSeek's success. However, the extent of these impacts remains to be seen, and the market's reaction might be overdone in the short term.