The world’s 500 richest individuals collectively lost $108 billion in a tech-led market selloff on Monday, as per a Bloomberg report.
This abrupt decline was driven by the unexpected rise of DeepSeek, a Chinese AI platform that is challenging Silicon Valley’s dominance with its low-cost, highly efficient AI model.
Nvidia Corp. co-founder Jensen Huang bore the brunt, losing $20.1 billion, while other tech titans like Oracle’s Larry Ellison and Binance’s Changpeng Zhao also faced substantial hits.
What is DeepSeek, the AI rattling ChatGPT and Nvidia
Hangzhou-based DeepSeek has launched DeepSeek-r1, a $6 million AI model rivaling US giants like OpenAI and Alphabet.
DeepSeek R1, is a free chatbot app that has topped download charts worldwide, showcasing its ability to rival established players like OpenAI’s ChatGPT.
Founded in 2023 by entrepreneur Liang Wenfeng, DeepSeek is an example China’s expanding AI capabilities.
The lab utilised Nvidia’s H800 chips, which are less powerful than the restricted H100 chips subject to US export controls.
Despite this, DeepSeek’s model has outperformed Meta’s Llama 3.1, OpenAI’s GPT-4, and Anthropic’s Claude Sonnet 3.5 in third-party benchmarks.
Additionally, DeepSeek’s r1 reasoning model has surpassed OpenAI’s o1 in areas such as problem-solving, math, and coding.
DeepSeek challenges Silicon valley’s dominance
DeepSeek, became a disruptive force almost overnight with its free chatbot, DeepSeek r1, which has gained global attention.
The app’s unprecedented popularity forced the company to limit access to users with Chinese phone numbers after server overloads.
Its development cost of just $6 million starkly contrasts with the billions spent by US tech giants, prompting investors to reconsider the traditional high-spending playbook of Silicon Valley.
Deepseek’s cost-efficient breakthrough questions the lofty valuations of firms like Nvidia and Meta. Founded in 2023 by entrepreneur Liang Wenfeng, DeepSeek leverages China’s expanding AI capabilities.
Liang’s expertise in AI-driven investments, through ventures like Hangzhou Jacobi Investment Management and Huanfang Technology, has propelled the startup’s rapid progress.
DeepSeek’s success has exposed vulnerabilities in the Western AI market, which relies heavily on advanced semiconductors and massive energy resources. Companies like Meta, Alphabet, and Nvidia have poured tens of billions into AI development.
For instance, Meta’s CEO Mark Zuckerberg announced plans to spend up to $65 billion on AI-related projects in 2024 alone. However, the emergence of a cost-effective competitor like DeepSeek has cast doubt on whether such investments are sustainable or even necessary.
This shift was felt across the markets, with tech-sector billionaires experiencing significant losses. Jensen Huang’s fortune, which had surged to $121 billion during the AI boom, dropped by 20% in a day.
Larry Ellison’s $22.6 billion loss represented the largest absolute decline, while Michael Dell saw $13 billion erased from his net worth. Overall, tech leaders accounted for 85% of the day’s $108 billion wealth contraction.
Not all tech billionaires were impacted by the stock rout. Zuckerberg, for instance, saw his wealth increase by $4.3 billion as Meta rebounded in late-session trading.
Similarly, Jeff Bezos experienced a modest gain of $632 million.
DeepSeek’s rise
DeepSeek’s success also highlights the innovative potential of resource constraints. Despite strict US export controls limiting access to advanced chips, Chinese firms like DeepSeek have found a way to challenge American AI models.
This has allowed them to develop competitive AI models without the immense financial burden faced by Western firms.
Silicon Valley has relied on cutting-edge hardware and extensive data centre infrastructure to maintain its AI leadership. DeepSeek’s approach, which prioritises efficiency and resourcefulness, challenges this narrative.
Investors are now questioning whether the capital-heavy strategies of US companies are sustainable in a market that increasingly values agility over brute force.
This realignment comes at a time when capital spending by Big Tech firms is expected to reach $200 billion by 2025.
Nvidia, Meta, and Alphabet have been major beneficiaries of this trend, with their stock valuations soaring.
Yet, Monday’s selloff suggests that markets are beginning to reassess the risks associated with such heavy reliance on capital-intensive models.
The rise of DeepSeek has far-reaching implications for the global AI industry.
By achieving success with minimal investment, the company has demonstrated that efficiency can rival, and perhaps surpass, capital in driving innovation.
This poses a significant challenge to US tech giants, whose fortunes are closely tied to the AI supply chain.
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