A small government-backed company in China named DeepSeek recently shook the stock market. The largest ever market-cap drop in the stock market erased 589 billion dollars from the world’s most powerful company Nvidia (NVDA), a company that specializes in creating powerful futuristic computer chips and has, for the past two years, helped titanic companies such as Apple and Microsoft expand.
As NVDA’s market capital (a stock value calculation based on the number of shares multiplied by the price per share) greatly decreased, many other companies that NVDA impacts also decreased, including many companies in the tech-heavy NASDAQ 100 and some companies in the S&P 500. The NASDAQ 100 decreased by a little more than 3%, which is relatively large for an exchange-traded fund (ETF).
The reason for these drops is DeepSeek. DeepSeek creates the same types of chips NVDA creates but for a smaller cost and fewer resources. DeepSeek has also created its own version of Chat GPT- R1.
Exactly how DeepSeek creates these powerful chips for a fraction of the resources is a mystery, but the company’s impact proves that there is still a massive market for AI development.
To see how such a small company affected the entire stock market, let’s rewind.
January 2025: DeepSeek released R1 at a fraction of the development cost and resources compared to Chat GPT. The small stock rapidly gained popularity and sent shock waves through the stock market, making investors panic and sell their stocks of NVDA, leading to a 600 billion dollar loss in market capital (how much the company is worth).
DeepSeek has seemingly proved there is a huge market for AI, and that the AI market can shift from immense companies in the U.S. to emerging companies in China[…]
In the short term, this does not mean anything because NVDA’s assets, revenue, and expenses are the same, but it can change how investors see the stock as weaker in the future. DeepSeek has highlighted China’s growing capabilities in producing advanced AI technologies efficiently and has sparked debates about whether the U.S. can keep its competitive edge in the AI race.
DeepSeek has seemingly proved there is a huge market for AI, and that the AI market can shift from immense companies in the U.S. to emerging companies in China, which explains changing global trade dynamics. Tariffs (trade restrictions on countries/groups) have been placed on China, but DeepSeek’s price efficiency, paired with the high demand for AI products, has made the tariffs on semiconductors in China unsuccessful. This may prompt the U.S. to reconsider its approach to its trade restrictions.
In response to the tariffs on China, China has imposed its own tariffs on the U.S. on coal, oil, farm equipment, and cars. This tariff war, called the tit-for-tat strategy, leads to increased prices for all consumers. Along with the trade war with China, other countries such as Mexico and Canada have responded with the same strategy, doubling down on tariffs on the U.S. in response to President Donald Trump’s implemented tariffs in an attempt to decrease illegal immigration and drug trafficking.
Overall, the impact of AI cannot be understated. A single small company can influence entire economies and shape the information we access. AI touches every aspect of our daily lives, from the apps we use to the way we learn and interact. For students, understanding AI’s origins, goals, and purpose is crucial to fully harness its potential.
By staying informed about AI, students can better prepare for a future where technology plays an even bigger role.
