Chinese firm DeepSeek’s artificial intelligence chatbot has soared to the top of the Apple US App Store’s download charts. AFP
Australian stocks linked to artificial intelligence (AI) fell sharply on Tuesday amid growing concerns that a new, low-cost AI model from Chinese startup DeepSeek could challenge the dominance of established market leaders.
Shares of AI-focused companies like Appen, a software firm, and Brainchip, an AI chipmaker, saw significant drops. Appen fell by 3.3%, while Brainchip dropped by 10.3%. The technology sub-index was also down 1%, Reuters reported.
DeepSeek, founded in 2023 by the Chinese hedge fund High Flyer, launched its new AI model, R1, which claimed to use less data at a fraction of the cost compared to existing services.
Just days after its release, DeepSeek’s free AI assistant surpassed ChatGPT in downloads on Apple’s app store, capturing the attention of global investors.
Global tech stocks crash
The sudden rise of DeepSeek’s model sent shockwaves through the global technology market.
Nvidia, a leader in AI chip manufacturing, reached AU$1 trillion (US$600 billion) in market value overnight on Monday, marking the largest single-day loss in Wall Street history. Other major U.S. tech companies, such as Microsoft, Alphabet, and Amazon, who were investing in AI tools including ChatGPT and Gemini, also saw their stock prices fall sharply on Monday, according to report by The Conversation.
In Australia, data centre landlords like Goodman Group, NEXTDC, and DigiCo Infrastructure suffered steep losses, with their respective shares dropping by 6.4%, 6.2%, and 11.1%. The concern is that DeepSeek’s low-cost model may reduce demand for the infrastructure that supports AI services.
“In our view, DeepSeek most likely drives further demand for data centers globally with advanced computational capabilities, high capacity storage, robust networking, energy efficient designs and infrastructure,” analysts at Citi stated.
Why AI stocks dropped so quickly
The market was surprised by DeepSeek’s launch of a low-cost AI model that performed similarly to current technologies, changing expectations about the future of AI.
Investors are rethinking how much it should cost to develop AI, as DeepSeek’s R1 model shows that more can be achieved for less. It made U.S. tech giants like Nvidia and OpenAI less competitive, leading to a quick selloff in AI stocks.
Meanwhile, Jessica Amir, a market strategist at Moomoo, believes that the market will reassess its exposure to AI and tech stocks following the DeepSeek selloff. Investors will now turn to safer investments in sectors like healthcare and consumer staples, she pointed out.
