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Jun 3, 2025  |  
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Ryan Lovelace


NextImg:AI stocks tumble as China’s cheaper new model claims spook investors

High-flying American stocks powering the artificial intelligence industry suffered a sharp blow on Wall Street Monday morning amid the rise in popularity of Chinese AI firm DeepSeek.

AI pioneer Nvidia dropped approximately 11% in intraday trading after the market opened, Microsoft dipped as well, and energy providers buoying the AI sector also saw investors selling off their stock.

The sudden pullback comes in the wake of Hangzhou-based DeepSeek releasing its newest model last week, one that it said was “on par” with American AI titan OpenAI’s tech. The company published a paper last week on its DeepSeek-R1 model claiming that it demonstrated “powerful and intriguing reasoning behaviors.”



The gains spooked investors amid effusive praise from some in the tech sector for its performance and rumors about its low budget compared to its American rivals.

“DeepSeek R1 is AI’s Sputnik moment,” said venture capitalist Marc Andreesen on X on Sunday, referring to when fears of Russian advances in the space race panicked Americans in the mid-20th century.

But skepticism abounds about just how DeepSeek arrived at its latest advancement. Rumors spread in Silicon Valley in recent months that DeepSeek’s model performed similar to American competitors for “around one-fourth of the cost,” according to the Wall Street Journal.

Doubts about the true cost persist, however. In response to an X user asking whether DeepSeek’s gain was “done on a shoestring” budget, X owner Elon Musk scoffed.

“Lmao no,” Mr. Musk said Sunday, laughing at the notion of the reportedly low cost.

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DeepSeek may also be far more reliant on some of the falling American AI stocks for its successes than people realize.

Last week, Scale AI CEO Alexandr Wang said DeepSeek had secured access to Nvidia’s technology. Despite restrictions impeding the access to Nvidia semiconductors, Mr. Wang said DeepSeek obtained the technology anyway.

“My understanding is that DeepSeek has about 50,000 [Nvidia] H100s, which they can’t talk about obviously because it is against the export controls that the United States has put in place,” Mr. Wang told CNBC.

DeepSeek began touting its newest model on Inauguration Day, claims that then sent shock waves through the American market. President Trump moved quickly last week after taking office to promote a multibillion-dollar AI investment deal for the U.S. to remain the market leader in the booming new field.

• Ryan Lovelace can be reached at rlovelace@washingtontimes.com.