Why the Launch of the DeepSeek Neural Network Crashed the US Stock Market

Record Drop for Nvidia and Other Giants

Nvidia, the leader in producing graphics processors for artificial intelligence, lost 17.8% of its capitalization in a single day. This was the largest drop in the companys historyits market value decreased by $600 billion. But Nvidia wasnt the only victim: Broadcom shares fell by 17.4%, Oracle by 13.8%, and Microsoft by 3%. Even the Nasdaq Composite index dropped by 3.5%, marking its worst performance since December 2023.

Whats So Special About DeepSeek R1?

The Chinese startup DeepSeek introduced the R1 neural network, which not only outperformed OpenAI and Google models in key tests but also did so at a fraction of the cost. For example, to train a model with 685 billion parameters, DeepSeek used only 2,048 Nvidia H800 accelerators, spending just $5.6 million. In comparison, OpenAI and Google spend tens of times more on similar tasks.

But the real game-changer was DeepSeeks release of instructions for creating large language models capable of self-learning. This makes AI technologies accessible to a wide range of developers, undermining the monopoly of major players. Additionally, the cost of accessing the DeepSeek R1 API is 9095% lower than that of competitors.

Why Did the Market React So Sharply?

Investors realized that the era of the more accelerators, the better is coming to an end. DeepSeek proved that powerful AI models can be created with minimal hardware costs. This threatens Nvidias business model, which relies on accelerators for over 80% of its revenue. If demand for GPUs declines, it will impact not only Nvidia but the entire tech sector.

Nvidias Response and Analysts Opinions

Why the Launch of the DeepSeek Neural Network Crashed the US Stock Market

Despite the stock crash, Nvidia called DeepSeek R1 an outstanding achievement in artificial intelligence. The company emphasized that its accelerators are still essential for inference (running trained models), especially with a large number of users. However, analysts are divided. Some believe Nvidia faces a prolonged downturn, while others see the current drop as a buying opportunity.

What Does the Future Hold?

DeepSeeks success has shown that the AI race is becoming increasingly competitive. Chinese companies like DeepSeek can offer cheaper and more efficient solutions, challenging the dominance of American tech giants. Analysts warn that similar events could happen again if regulators dont establish clear rules for using AI in financial markets.

Conclusion

The launch of the DeepSeek R1 neural network was not just a technological breakthrough but an event that changed the rules of the game in the AI market. Now, companies that previously spent billions training models can do so at minimal cost. This opens new opportunities for AI development but raises questions about the future of giants like Nvidia. One thing is certain: the world of artificial intelligence will never be the same.