DeepSeek sends a shockwave through markets

Subscribe to enjoy similar stories. In a flash, euphoria over artificial intelligence (AI) has turned to panic. Since early trading began on January 27th the market value of Nvidia, an AI chipmaking champion, has slumped by 17% at the time of writing.

The share prices of Alphabet, Amazon and Microsoft—America’s cloud-computing triumvirate—have fallen by 3%, 1% and 3%, respectively. All told, American tech companies have shed around $1trillion in value. The immediate cause of investors’ panic is DeepSeek, an obscure Chinese hedge-fund turned AI startup that last week blew analysts away with its latest large language model, R1.

Consumers are flocking to DeepSeek’s chatbot, which was the most downloaded app on iPhones over the weekend. Innovative techniques have allowed the company to train AI models that perform about as well as the most sophisticated Western models with only a fraction of the computer power—and so a fraction of the cost. DeepSeek’s entrance on the AI scene comes at a time when American tech giants are splurging ever more on AI infrastructure.

Last year the combined spending on data centres by the three cloud-computing giants and Meta (which has also been developing AI models) reached about $180bn, up by 57% from the year before. At the start of this month Microsoft said it would spend a further $80bn in 2025 on AI infrastructure. Last week Meta said it was planning to pour $65bn into AI this year.

Yet if high-performing models can be trained with less computing power, all that investment may prove excessive. Although shareholders in the cloud-computing giants might welcome a reprieve from further capital spending, they may now be wondering what will become of the investments made to date. Even more