DeepSeek breakthrough raises investor concerns over the need for massive AI spending

A little-known Chinese start-up, whose affordable technology matches the likes of the most formidable American tech titans such as OpenAI and Meta Platforms, has raised investor concerns over the necessity of pouring billions of dollars into research and development.

Chinese artificial intelligence (AI) company DeepSeek released its open-source reasoning model, R1, earlier this month. The model’s capabilities roughly match those of advanced models from OpenAI, Anthropic, and Google while having significantly lower training costs.

“The impressive performance/cost dynamics have raised investor concerns about the necessity of the billions of dollars of capital expenditures by large US tech companies and the billions more they are planning to spend on generative AI in the coming years,” said Malik Ahmed Khan, an equity analyst from Morningstar, in a research note on Tuesday.

Large US tech companies may follow suit and replicate some of the AI training techniques that DeepSeek leveraged to drive the cost of R1 down, said Ahmed.

When DeepSeek launched, it quickly became the most downloaded app in Apple’s US AppStore. The better-than-expected performance of DeepSeek led to a mass sell-off of Nvidia’s stock on Monday, with the shares plunging 17 per cent to US$118.58.

“This was bound to happen, and it could have come from anywhere,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis. “It came from China, all the more so, in a way, to see a correction.”