Technology stocks dropped sharply yesterday as a cheap but powerful Chinese chatbot made waves in Silicon Valley, suggesting cutting-edge AI applications may be possible without expensive processors and intricate models. The three major US stock indexes closed mixed (S&P 500 -1.5%, Dow +0.7%, Nasdaq -3.1%).
Known as DeepSeek, the company released its latest R1 model last week, claiming it performed as well as OpenAI's latest-generation o1 model at 3% to 4% of the cost per output (see breakdown). Officials said the model took just two months and less than $6M to build and relied on earlier-generation chips to operate. The model is both free and open source—meaning anyone can take and modify it—and R1 has become the top free download in the Apple App Store. Analysts say DeepSeek likely won't displace US AI companies but may reshape the industry's economics.
Among those hardest hit was chipmaker Nvidia, which saw almost $600B in market cap evaporate—the biggest single-day loss in history—as shares dropped nearly 17%.
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