In a significant development within the artificial intelligence (AI) sector, Chinese startup DeepSeek has unveiled an advanced AI model that has sent ripples through global markets, particularly impacting industry leaders like OpenAI and Nvidia.
DeepSeek’s Breakthrough
DeepSeek’s latest AI model, DeepSeek-R1, boasts 671 billion parameters and offers performance comparable to leading models such as OpenAI’s ChatGPT. Notably, DeepSeek achieved this at a fraction of the typical development cost, reportedly spending only £4.8 million compared to the £80 million invested in ChatGPT. This cost-efficiency is attributed to DeepSeek’s innovative training methodologies and optimization techniques.
Market Repercussions
The introduction of DeepSeek-R1 has had immediate and profound effects on the market. Nvidia, a key supplier of graphics processing units (GPUs) for AI applications, experienced a historic decline in its stock value, with a 17% drop resulting in a loss of nearly $600 billion in market capitalization—the largest single-day loss in U.S. history. This downturn reflects investor concerns about potential shifts in AI hardware demand due to DeepSeek’s cost-effective approach.
Challenges to U.S. AI Dominance
DeepSeek’s emergence challenges the prevailing notion of U.S. supremacy in AI development. The startup’s ability to produce a competitive AI model with significantly lower resources suggests that high-cost infrastructure may not be as critical as previously thought. This development has prompted a reevaluation of investment strategies within the AI industry and raised questions about the future landscape of AI innovation.
This might be a reason to worry for Indian investors, As of December 2024, Indian mutual funds held ₹1,546 crore in Nvidia, largely through tech-heavy indices like Nasdaq 100 and S&P 500. Nvidia’s dominance in AI technology had fueled strong returns, but DeepSeek’s breakthrough in creating competitive AI models with cheaper Nvidia chips has shaken confidence in its long-term growth.
With Nvidia accounting for up to 10.94% of some portfolios and tech exposure often exceeding 50%, the sharp correction in its stock poses significant challenges for mutual funds. This highlights the risks of concentrated exposure in volatile sectors like technology and underscores the need for diversification.
Ironically though, we Indians arent even in the competition - what do you think should the approach be for building this capacity in our country?