US stocks took a steep dive on Monday morning after a groundbreaking announcement from a Chinese AI startup, DeepSeek, which shook the dominance of the American tech sector. DeepSeek, a year-old company, introduced its new AI model, R1, which mirrors the capabilities of popular AI systems like ChatGPT. However, R1 operates at a fraction of the cost of models from US giants such as OpenAI, Google, and Meta.
The company revealed that it spent just $5.6 million to train R1, a stark contrast to the hundreds of millions—or even billions—spent by US firms on similar AI technologies. This revelation, first reported by The Wall Street Journal, sent shockwaves through the stock market, particularly hitting the tech sector hard.
On Monday, the Dow Jones dropped by around 369 points, or 0.8%, while the S&P 500 fell by 2%. The tech-heavy Nasdaq saw a dramatic plunge of 3.6%, marking its biggest drop since September 2022. Meta recently announced it would invest over $65 billion in AI this year, and OpenAI’s Sam Altman has warned that trillions of dollars will be needed to support the AI infrastructure—costs that seem to dwarf what DeepSeek spent on its breakthrough.
Marc Andreessen, a leading tech investor and supporter of President Donald Trump, praised DeepSeek’s development, calling it “one of the most amazing and impressive breakthroughs I’ve ever seen” in a post on X.
What makes this achievement even more remarkable is that DeepSeek managed to build such a powerful model despite US restrictions on exporting high-power AI chips to China, citing national security concerns. The Chinese startup achieved this at a significantly lower cost using under-powered AI chips, further intensifying the shockwave through the market.
On Monday, US tech stocks were hammered. Nvidia (NVDA), the leading supplier of AI chips, dropped by 12%. Meta (META), Alphabet (GOOGL), and other major tech players like Marvell, Broadcom, Palantir, and Oracle also saw sharp declines. Since tech stocks make up roughly 45% of the S&P 500, the sell-off dragged down the broader market as well.
Keith Lerner, analyst at Truist, noted that the US stock market’s outperformance has been driven largely by its tech sector, particularly in AI. He pointed out that DeepSeek’s development has raised questions about the future dominance of US companies in the AI space and whether their massive investments will translate into profits or just overspending.
As a new earnings season kicks off for major tech companies, their responses to DeepSeek’s breakthrough could lead to further volatility in the coming weeks. However, while DeepSeek’s achievement is extraordinary, it may not be enough to topple years of American progress in AI leadership. A major shift toward a Chinese startup seems unlikely, and some analysts believe the market selloff could be an overreaction—or perhaps investors were just waiting for a reason to pull back.
“Time will tell if the DeepSeek threat is real,” said Michael Block, market strategist at Third Seven Capital. “The race is on to see which technology works, and how the big Western players will respond and evolve.” He added that markets may have become too complacent under the looming influence of the Trump 2.0 era, finding a “great excuse” to pull back with this new development.
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