DeepSeek Triggers AI Rethink, With Tech Stocks Hardest Hit

Low-cost China model sparks market rout as investors question valuations of US firms

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The emergence of a low-cost Chinese artificial intelligence (AI) model sparked a global market rout on Jan 28 as investors questioned the sky-high valuations of AI bellwethers, with US President Donald Trump saying it was a "wake-up call" for Silicon Valley.

The increasing popularity of DeepSeek spurred investors to dump tech stocks globally, with ripples spreading beyond the US markets to Tokyo, Amsterdam and even Singapore.

It all stemmed from a free AI assistant launched by Chinese start-up DeepSeek last week that the firm said uses less data at a fraction of the cost of services available currently, garnering significant attention worldwide, including from OpenAI chief executive officer Sam Altman, who called it an "impressive model".

The release initially received limited attention, overshadowed by the inauguration of Mr Trump on the same day.

However, at the weekend, the Chinese chatbot surged to become the most downloaded free app on Apple's US App Store, displacing OpenAI's ChatGPT.

Shares of Nvidia, the poster child of the current AI boom, sank 17 per cent on Jan 27 and wiped US$593 billion (S$800 billion) off the chipmaker's market value. This marks a record one-day loss of any US-listed company.

Broadcom finished down 17.4 per cent in the US, with ChatGPT backer Microsoft falling 2.1 per cent and Google parent Alphabet ending down 4.2 per cent.

Overall, the Nasdaq was down 3 per cent on Jan 27, the equivalent of a US$1 trillion haircut.

"What makes (the) tech sell-off so jarring is that the valuations of many of these AI and tech companies offer no margin of error," said Mr David Bahnsen, chief investment officer of The Bahnsen Group.