Tech Stocks Stabilize Amid DeepSeek AI Launch Controversy

Following a steep decline in US tech stocks after the launch of China's DeepSeek AI, shares have stabilized with notable recoveries for companies like Nvidia. Experts weigh in on the potential disruption and competitive implications for the American tech industry.

US tech stocks have found stability on Tuesday after a tumultuous Monday, when shares slumped following the launch of DeepSeek, a new Chinese artificial intelligence (AI) app. Nvidia, a key player in AI chip manufacturing, saw its shares rise by 8.8%, rebounding after a significant 17% drop the previous day, which erased nearly $600 billion from the company's market value. Experts have deemed the initial market panic as an overreaction, attributing it to uncertainty surrounding DeepSeek's claim of performing competitively at a fraction of the cost of existing models.

The emergence of DeepSeek, which quickly became the most downloaded free app in the US within a week of its launch, has provoked strong reactions. US President Donald Trump referred to the situation as "a wake-up call" for American tech, suggesting that a drive for cheaper AI solutions could be beneficial if it leads to improved results. Despite these challenges, Trump expressed confidence that the US would continue to lead in the AI sector.

The surge in DeepSeek's popularity comes amid ongoing warnings from US officials about a technological race with China, accompanied by efforts to curb the sale of advanced AI chip technology to Chinese companies. The innovations from Chinese developers, propelled by resource sharing and novel methodologies, are enabling them to create AI models that are notably less demanding in terms of computing power, thereby reducing costs.

After the initial shock from Monday's market reactions, US indexes saw a rebound. The Dow Jones Industrial Average retraced by 0.3%, while the S&P 500 and the Nasdaq climbed by nearly 1% and 2% respectively. Meanwhile, European markets also showed resilience, with the UK's FTSE 100 closing up by 0.35%.

In Asia, shares of Japanese firms connected to AI dropped, causing the Nikkei 225 index to decline by 1.4%. Chinese financial markets remained closed for Lunar New Year, with trading set to resume by February 5.

DeepSeek was founded in 2023 by Liang Wenfeng in Hangzhou, China, who has expressed surprise at the market's reaction to his company's AI solutions. DeepSeek's app has drawn attention due to its performance benchmarks, which according to several analysts, demonstrate emerging competitive pressures on American counterparts.

Prominent figures, including OpenAI CEO Sam Altman, have acknowledged the potential of DeepSeek, although skepticism remains about its claims. Elon Musk has raised questions about the veracity of these assertions about the technology's efficiency, highlighting ongoing concerns within the industry regarding security and data privacy implications. Industry experts are closely monitoring the situation as the landscape of AI development continues to evolve rapidly.