The hottest topic of the last few days is definitely the new R1 model of the Chinese company DeepSeek. This advanced artificial intelligence (AI) model achieves performance comparable to OpenAI’s leading models, but was developed at a significantly lower cost. This has led to significant stock market fluctuations, with the value of shares in tech giants such as Nvidia falling by almost 18%.
What is DeepSeek R1?
DeepSeek R1 is the latest AI model from Chinese startup company DeepSeek, which was founded in Hangzhou in 2023. It represents a shift in generative AI by offering advanced solutions for specialized industries in addition to standard functions such as generating text or answering questions. The app’s developers say that in finance, for example, it can analyse market trends and recommend investment strategies in real time, while in healthcare it can help with diagnostics or drug research.
Despite limited access to state-of-the-art chips due to U.S. export restrictions, DeepSeek was able to develop the model using less advanced chips and innovative training techniques, resulting in significant cost reductions. A key aspect of this model is that it is open-source, i.e. publicly available. DeepSeek has made this model freely available to developers, researchers and companies, allowing for a wide range of innovation.
Why are tech stocks falling because of DeepSeek?
DeepSeek R1 offers comparable performance to leading Western AI models, but offers a number of advantages:
- It’s open-source
- The cost of training the model has dropped from $100 million to $5 million.
- GPU requirements reduced by 98%
- It runs on common consumer hardware
This success suggests that traditional methods require high investment in hardware, and is also a dominant gesture by China that it can produce quality technology despite restrictions from the US.
It has broad implications for a variety of areas. For entrepreneurs, this model opens up new opportunities as it significantly reduces the cost of developing AI. It also presents an opportunity for smaller companies that previously could not compete with the tech giants – features previously considered too expensive are becoming feasible. In addition, simplified infrastructure requirements will allow businesses to optimise their plans and make better use of existing resources.
It is no surprise that the launch of R1 caused panic among investors, leading to a massive sell-off in technology stocks. Shares of Nvidia, the market leader in artificial intelligence chips, plunged nearly 18% on Monday, wiping more than $593 billion off the market value, a record one-day loss for any company. In addition to Nvidia, shares of Microsoft, Alphabet and other tech giants also saw declines.
The total market value of technology companies fell by around USD 1.6 trillion. The Nasdaq 100 index fell by around 3% overall, while the S&P 500 index fell by almost 2%.
