US tech stocks tentatively recovered on Tuesday after Donald Trump described the launch of a chatbot by China’s DeepSeek is a “wake-up call” for Silicon Valley in the global race to dominate artificial intelligence.
The emergence of DeepSeek, which has built its R1 model chatbot at a fraction of the cost of competitors such as OpenAI’s ChatGPT and Google’s Gemini, wiped $1tn (£800bn) in value from the leading US tech index on Monday.
Nvidia, a leading maker of computer chips that has experienced explosive growth amid the AI boom, had $600bn wiped off its market value in the biggest one-day fall in US stock market history.
The market fall spread to Asia on Tuesday, as Japan’s Nikkei share average fell 1.3%. Japanese-listed tech stocks fell, as the manufacturer Advantest was down 11%, Tokyo Electron off almost 6% and Disco Corporation dropped nearly 3%. Stock in the tech investor SoftBank fell more than 5%.
Most other big Asian markets were shut for the lunar new year holiday.
During early trading in New York, the tech-focused Nasdaq Composite opened higher before falling back into the red, only to turn positive. It was up 1.3% by mid-morning, while the benchmark S&P 500 gained 0.6%.
Nvidia recovered slightly from Monday’s 17% drop, rising 2.8%. Alphabet, the owner of Google, gained 1.2% and Microsoft increased 1.8%.
“The release of DeepSeek, AI from a Chinese company, should be a wake-up call for our industries that we need to be laser-focused on competing to win,” said Trump.
He pointed to DeepSeek’s ability to apparently deliver the same performance as existing AI models with far fewer resources, threatening US dominance of the AI boom.
“That’s good because you don’t have to spend as much money,” Trump said. “I view that as a positive, as an asset.”
On Monday, the DeepSeek assistant surpassed ChatGPT in downloads from Apple’s app store.
Sam Altman, the chief executive of OpenAI, said he was impressed with DeepSeek but the US industry would speed up development.
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“DeepSeek’s R1 is an impressive model, particularly around what they’re able to deliver for the price,” he said. “We will obviously deliver much better models and also it’s legit invigorating to have a new competitor. We will pull up some releases.”
Marc Andreessen, a leading US venture capitalist, compared the launch of DeepSeek’s R1 model on Monday to a pivotal moment in the US-Soviet space race, posting on X that it was AI’s “Sputnik moment” – referring to when the Soviet Union astounded its cold war rival by launching a satellite into orbit.
According to DeepSeek, its R1 model outperforms OpenAI’s o1-mini model across “various benchmarks”, while research by Artificial Analysis puts it above models developed by Google, Meta and Anthropic in terms of overall quality.
The company was founded by the entrepreneur Liang Wenfeng, who runs a hedge fund, High-Flyer Capital, that uses AI to identify patterns in stock prices. Liang reportedly started buying Nvidia chips in 2021 to develop AI models as a hobby, bankrolled by his hedge fund. In 2023, he founded DeepSeek, which is based in the eastern Chinese city of Hangzhou.
The company is focused purely on research rather than commercial products – the DeepSeek assistant and underlying code can be downloaded for free, while its models are also cheaper to operate than OpenAI’s o1.
