US Stock Markets Plunge Amid China’s Competitive AI Chatbot Launch

U.S. equity markets experienced significant declines as investors reacted to rising fears surrounding China’s advancements and potential threats in the artificial intelligence sector.

U.S. stock markets experienced their steepest decline in five months following the launch of a new AI chatbot by a Chinese start-up, DeepSeek, which poses a cost-effective challenge to major global competitors.

At the opening bell, Wall Street’s tech-heavy Nasdaq Composite index plummeted by 3.6%, marking its largest drop since September, as DeepSeek’s innovative artificial intelligence chatbot sparked significant market volatility. According to Bloomberg, AI-focused equities in the U.S. and Europe were on track to lose nearly $1 trillion in valuation after DeepSeek’s app surged to the top of the Apple Store’s download charts.

DeepSeek impressed industry experts by demonstrating that its chatbot could rival leading U.S. models while only investing $5.6 million (£4.5 million) in its development. In contrast, Microsoft has already invested $14 billion in OpenAI, the creator of ChatGPT. As a result, Microsoft’s shares fell by 3.5% in New York, erasing more than $119 billion (£95 billion) from its valuation.

William Beavington of Jefferies remarked, “What’s particularly remarkable to us really is the cost-effectiveness and the efficiency they have driven from the chips being used.”

Nvidia, the dominant supplier of AI hardware and software, saw its stock drop by 13%, wiping out nearly $465 billion (£371 billion) in market value. This decline followed a previous drop of over 3% on Wall Street the preceding Friday.

Japanese tech giant SoftBank also faced significant losses, declining by more than 8% overnight. This downturn occurred less than a week after SoftBank was announced as a key investor in U.S. President Donald Trump’s new $500 billion (£401 billion) initiative to develop artificial intelligence infrastructure in the United States.

DeepSeek, developed by a start-up based in Hangzhou—a city renowned for its concentration of tech firms—offers its chatbot as both an app and desktop application. The chatbot is capable of performing various tasks similar to its Western counterparts, including writing song lyrics, assisting with personal development plans, and generating recipes based on available ingredients.

Venture capitalist Marc Andreessen, a close advisor to President Trump, likened DeepSeek’s impact to “AI’s Sputnik moment,” referencing the Soviet satellite launch that ignited the Cold War space race.

Professor Michael Woolridge, an AI expert at Oxford University, stated that DeepSeek’s model undermines the belief that large US AI companies maintain a “moat” that is difficult for other firms to penetrate.

He commented, “DeepSeek demonstrates that Wisdom is just as capable as the leading US models but operates on a much smaller scale.”