DeepSeek, the latest entrant in the AI race, is edging past rivals like ChatGPT, Gemini and Meta AI

DeepSeek, the latest player in the AI space, has taken Silicon Valley by storm. Its immense capabilities surpass rivals like Open AI’s ChatGPT, Google’s Gemini, and Meta AI’s Llama.

The Chinese AI startup claims its DeepSeek-R1 model delivers results comparable to OpenAI’s o1 model. It sometimes even outperforms OpenAI’s o1, achieving a staggering 97% success rate. Remarkably, it does all this at a 95% lower cost than OpenAI’s o1.

Existing players like Google, Meta, and NVIDIA have seen phenomenal growth in the past few years and have created enormous wealth for investors. However, with the launch of DeepSeek, investor sentiment has soured.

On Monday morning, the tech-heavy index NASDAQ futures traded deep in the red with a nearly 400-point drop. The overnight rates also suggest a 5% drop in the NVIDIA share price.

To understand this better, it's important to know the role that NVIDIA plays in the AI industry.

What led to the rise of NVIDIA?

NVIDIA's competitive advantage lies in the development of Compute Unified Design Architecture (CUDA) programming. When CUDA programming is used in GPUs like NVIDIA's H100, it can calculate complex mathematical problems and process complex data simultaneously. This has resulted in a meteoric rise in demand for the H100 GPU, which has emerged as the core of any AI model.

What was a $145 billion company in 2022 has become one of the highest-valued, with a $4 trillion market capitalisation in 2024. Revenue went from $26 billion in 2022 to over $60 billion in 2024, and profits went from $9 billion to $30 billion in a similar period. The stock price has gained nearly 2,165% in the last five years, driving the AI wave. Media reports and research studies also suggest that NVIDIA holds nearly 70% market share in the GPU space.

What is DeepSeek and how does it affect NVIDIA?

DeepSeek is a Chinese AI start-up that has made great strides in AI capabilities and efficiencies. Its models have challenged the dominance of Big Tech companies like Open AI, Microsoft, Google, and Meta.

What’s striking is that it has achieved this with significantly lower manpower, with nearly 220 employees as compared to ~4,500 employees at Open AI and a meagre investment of approximately $50 million. The feat is achieved on the older H800 GPUs instead of the latest H100, which every tech company is currently piling on. The company aims to achieve new peaks with its limitations on cutting-edge GPUs, making the US sanctions on tech imports look less effective.

How does this impact global markets?

The success of DeepSeek has already sent shockwaves in Silicon Valley as it plans to invest $500 billion in AI. US markets have rallied significantly in the past three years, primarily led by the tech stocks. Following the emergence of DeepSeek, tech stocks, which have rallied multi-fold, are now feeling the heat of new competition.

The stock prices of chip manufacturers like NVIDIA, Broadcom, Super Micro, Qualcomm, AMD, and Intel saw deep cuts in the overnight market, trading nearly 5% lower as a first response to DeepSeek's success.

The tech-heavy index NASDAQ futures fell nearly 400 points and are on the brink of erasing $1 trillion in market value at open on Monday. Similarly, taking cues from the global markets, the Indian IT companies TCS, Infosys, Tech Mahindra, and HCL Technologies fell 2% to 2.5% on Monday morning.

The emergence of DeepSeek is expected to change the dynamics of geopolitics and global markets as the latest rally in the US markets was largely led by tech stocks on optimism of AI and its capabilities. The sanctions on China for importing the latest technologies now look less effective and give the upper hand in negotiations with the US in an impending trade war. Investors and market experts point towards cooling off in tech stocks as they went into a bubble territory after the meteoric rise in share prices of companies like NVIDIA