With the sharp decline of the U.S. stock market on Monday, chip manufacturer Nvidia lost nearly $600 billion in market value. Earlier, the unexpected progress of Chinese artificial intelligence company DeepSeek threatened the halo surrounding the U.S. technology industry.

DeepSeek, a one-year old startup, revealed a stunning feature last week: it showcased a ChatGPT like AI model called R1, which has all the familiar capabilities and runs at a fraction of the cost of popular AI models from OpenAI, Google, or Meta. The company stated that compared to American companies spending billions or even billions of dollars on AI technology, its basic model's computing power only costs $5.6 million.

On Monday, this brought a shock wave to the market, especially in the technology industry.

The tech dominated Nasdaq index plummeted 3.1%, while the broader S&P 500 index fell 1.5%. The Dow Jones Industrial Average rose 289 points, or about 0.7%, boosted by healthcare and consumer companies that may be affected by artificial intelligence. At the beginning of the day, the losses in the stock market were much greater.

Meta announced last week that it will spend over $65 billion on AI development this year. OpenAI CEO Sam Altman stated last year that the AI industry will require trillions of dollars in investment to support the development of demand chips that power power power consuming data centers that run the industry's complex models.

Marc Andreessen, a supporter of President Donald Trump and one of the world's leading technology investors, referred to DeepSeek as "one of the most amazing and impressive breakthroughs I have ever seen" in an article on X.

Considering that the United States has been trying to restrict the supply of high-power AI chips to China for many years under the pretext of national security, the astonishing achievements of a relatively unknown AI startup have become even more shocking. This means that DeepSeek can implement its low-cost model on AI chips with insufficient power.

Technology stocks plummet

US tech stocks suffered heavy losses on Monday.

Leading AI chip supplier Nvidia (NVDA) fell nearly 17%, with a market value loss of $588.8 billion - the largest daily loss in stock market value to date and more than double Meta's record of $240 billion set nearly three years ago.

In the long run, Nvidia's market value loss on Monday exceeded the value of all companies except for 13. Nvidia is the most valuable publicly traded stock in the market, with a market value exceeding $3.4 trillion, and its stock price has more than doubled each year in the past two years. It ended the day in third place, second only to Apple and Microsoft.

Google's parent companies Meta (META) and Alphabet (GOOGL) also experienced significant declines. Nvidia's competitors, Marvel, Broadcom, Micron, and TSMC, have also experienced significant declines. Oracle (ORCL), Vertiv, Constellation, NuScale, and other energy and data center companies have all experienced declines.

This has dragged down the broader stock market, as technology stocks make up a significant portion of the market - according to Truist analyst Keith Lerner, technology stocks account for about 45% of the S&P 500 index.

Most importantly, the outstanding performance of the United States is driven by technology and the leading position of American companies in the AI field, "Lerner said. The launch of the DeepSeek model has led investors to question the leading edge of American companies, the amount of expenses incurred, and whether these expenses will result in profits (or overspending)

This week, a series of technology companies will release their financial reports, so their reaction to the shocking DeepSeek event may lead to market volatility in the coming days and weeks. Meanwhile, investors are closely monitoring Chinese artificial intelligence companies.

Due to geopolitical concerns and weak global demand, Chinese technology companies, including new entrants such as DeepSeek, are trading at significant discounts, "said Charu Chanana, Chief Investment Strategist at Saxo Bank. "The rise of DeepSeek may stimulate investors' new interest in the undervalued Chinese AI companies, thus providing another growth story."

Large scale rotation of AI betting

This news also triggered a huge change in Wall Street's investment in non tech companies.

In recent years, due to the large amount of electricity required to power AI data centers, the trading volume of energy companies has significantly increased. But they all plummeted on Monday. Constellation Energy (CEG), a company planning to revive the Three Mile Island nuclear power plant to power AI, fell 21% on Monday. Competitors such as VST and GE Vernova (GEV) fell by 28%, while GE Vernova (GEV) fell by 21%.

Natural gas futures used to power generators fell 5.9%. The oil price has dropped by more than 2%.

Bitcoin and other cryptocurrencies have also plummeted.

But is it really the case?

An achievement, though shocking, may not be enough to offset the progress of the US AI leadership over the years. Moreover, the likelihood of large-scale customers turning to Chinese startups is also low. Therefore, the market sell-off may be a bit excessive - or investors may be looking for an excuse to sell.

Time will prove whether the threat of DeepSeek really exists - the competition over what technology is effective and how large Western players will respond and develop has already begun, "said Michael Block, market strategist at Third Seven Capital. The market was too complacent at the beginning of the Trump 2.0 era and may have been looking for excuses to retreat - they got a good excuse here

The industry also believes in the company's words that the cost is so low. No one really disagrees with this, but the market panic depends on the authenticity of a relatively unknown company.

Although cost saving achievements may be significant, the R1 model is a competitor to ChatGPT - a large language model centered around consumers. It has not yet proven that it can handle some ambitious AI functionalities for industries that still require significant infrastructure investment.

Due to its abundant talent and capital base, the United States remains the most promising 'home ground', and we expect to see the first self improving artificial intelligence emerge, "said Giuseppe Sette, President of Reflexivity, an artificial intelligence market research company.