Meta CEO, Mark Zuckerberg and Tesla and SpaceX CEO, Elon Musk
The recent news surrounding the power and efficiency of China’s DeepSeek roiled tech markets Monday and landed just in time to give U.S. tech investors a reason to pay particularly close attention to earnings season, which kicks off after the bell Wednesday.
DeepSeek, an artificial intelligence lab based in Hangzhou, released a reasoning model called R1 last week that outperformed OpenAI’s latest model in many third-party tests. In late December, DeepSeek launched a free, open-source large language model that it said took only two months and less than $6 million to build. The startup was founded in 2023.
While there’s plenty of skepticism surrounding DeepSeek’s claims, the latest pronouncements caused a panic on Wall Street due to the potential implications of significantly cheaper AI models coming sooner rather than later.
Nvidia’s stock price plummeted 17% on Monday, its steepest drop since the early days of the Covid pandemic in March 2020. The sell-off wiped out almost $600 billion in market cap, the biggest one-day loss ever for a U.S. company. Shares of chipmaker Broadcom, which has also benefited from the AI boom, also dropped 17%. And Oracle, Dell, Super Micro Computer and Hewlett-Packard Enterprise all saw steep declines because they sell servers packed with Nvidia graphics processing units.
Meta, Microsoft and Tesla are among the megacap tech companies spending billions of dollars on AI infrastructure, with the biggest checks going to pay for Nvidia’s GPUs. Apple reports results Thursday, followed by Alphabet and Amazon next week.
The big immediate issues for those companies with respect to DeepSeek are less about revenue and more about costs. It’s a topic they tend to spend a lot of time talking about on earnings calls.
“The sheer efficiency of DeepSeek’s pre and post training framework (if true) raises the question as to whether or not global hyperscalers and governments, that have and continue to invest significant capex dollars into AI infrastructure, may pause to consider the innovative methodologies that have come to light with DeepSeek’s research,” wrote analysts at Stifel in a report Monday.
Investors hope to get some initial answers in earnings reports this week and next. Nvidia doesn’t report until late February, and Broadcom is expected to announce results in March.
