DeepSeek Disruption: How China’s AI Model Shook Global Tech Stocks and What’s Next?

Just when you thought the AI world was settling into OpenAI dominance and NVIDIA-fuelled growth, a new AI disruptor from China burst onto the scene and wiped off $1 trillion from the US stock market. Let’s understand this overnight phenomenon. 

DeepSeek, a Hangzhou-based startup that came into the limelight for its innovative AI model, saw a massive rise in the past week. And such a surge isn’t just a Silicon Valley problem. It’s got the world thinking—from Wall Street to our Dalal Street—on how nations should respond to shifting AI power dynamics. 

And with Alibaba jumping into the fray with a brand new AI language model – Qwen 2.5, claiming to be more potent than DeepSeek’s default model (V3), and India announcing its generative AI ambitions, the tech battleground just got a lot more interesting.

DeepSeek’s Meteoric Rise: The Origin Story

DeepSeek, the AI company whose controlling shareholder is Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, was founded in May 2023. However, it officially launched its AI model, R1, on January 20, 2025. Unlike US firms that rely on massive computing infrastructure, DeepSeek has built its model on more cost-effective structures, claiming it delivers superior performance to even OpenAI’s ChatGPT—at a fraction of the cost.

Reports suggest the DeepSeek-R1 is 20 to 50 times cheaper than the OpenAI o1 model, depending on the task. And the cherry on top? It’s open source, meaning anyone can look at how it functions, modify it, and build upon it.

DeepSeek vs ChatGPT

Wall Street’s Panic Mode: The $1 Trillion Sell-off

What was the immediate market reaction? Chaos. Following DeepSeek’s breakout success, a staggering $1 trillion was wiped off US and European tech stocks. NVIDIA, Alphabet, and Microsoft—three titans at the heart of the AI boom—saw their stock prices nosedive as investors recalibrated their AI expectations.

On January 27, 2025, NVIDIA, the world’s leading semiconductor company, was staring at a historic $589 billion market cap wipeout. To put that into perspective, this was bigger than any US company’s single-day wipeout ever. Bigger than Meta’s legendary 2022 flop when it erased about $251.3 billion in market value and bigger than Tesla’s 2020 rollercoaster week.

What Spooked the US? The Broader Implications

With the launch of DeepSeek-R1, the Nasdaq, which had been cruising on an AI-driven high, suddenly looked vulnerable. Investors realised that US giants might not monopolise AI’s future, but instead involve fierce competition from emerging players like DeepSeek, Qwen, DuoBao (ByteDance), mostly from China as of now. 

Moreover, analysts highlighted that the introduction of this cost-effective AI model could lead to a price war, potentially undermining the high valuations that many US tech companies like NVIDIA have enjoyed. The fear is that if DeepSeek can deliver similar performance at lower costs, it may disrupt established players’ market share and profitability.

That said, all is still not lost for NVIDIA. How? With this interesting concept recently flagged by Microsoft CEO Satya Nadella amid the AI battle: Jevons Paradox. 

The Jevons Paradox suggests that as AI models become cheaper and more efficient, overall demand for AI computing will increase, not decrease. Even if DeepSeek-like rivals optimise AI to run on lower-end hardware, the explosion in AI applications will drive more demand for Graphics Processing Units (GPUs). Rather than shrinking NVIDIA’s market, this AI boom could, in reality, fuel its growth and keep it relatively safe.

Think of it like fuel-efficient cars. You’d expect that as cars become more fuel-efficient, people will use less fuel. But in reality, the opposite happens—because driving becomes cheaper, people drive more, take longer trips, and even buy more cars. So, total fuel consumption still goes up.

India’s Turn

DeepSeek’s ascent isn’t just a wake-up call for Western tech giants; India, too, is very much in the picture. The Nifty IT index fell sharply by 3.35% on January 27, 2025, as market reactions to DeepSeek’s rise unfolded. 

Many Indian stocks, particularly those in the electronics manufacturing services (EMS) sector, have experienced significant turbulence. On January 28, 2025, shares of companies such as Dixon Technologies, Kaynes Technology, and Netweb Technologies plummeted by as much as 20%.

Why such a drop?

So, India’s EMS stocks are significantly affected by the performance of the Nasdaq Composite due to their substantial exposure to the technology sector. Many of these companies produce electronics and components for major global tech firms, leading to stock performances that closely align with Nasdaq trends. Additionally, firms like Netweb Technologies serve as NVIDIA’s manufacturing partners.

Point to ponder: As Indian EMS firms are closely tied to the performance of global tech giants, the latest disruption raises critical questions about the stability of Indian markets and the potential for similar tech disruptions to impact investor sentiment moving forward.

What is India Doing to Boost AI?

Union IT Minister Ashwini Vaishnaw recently unveiled plans for India to create its own generative AI model, specifically designed to reflect the country’s diverse cultural and linguistic landscape. (Talk about getting the timing right!)

To support this initiative, the government is significantly increasing its computing capabilities by nearly doubling the number of GPUs initially planned for AI development.

Additionally, to make GPU access more affordable, a 40% subsidy is being offered to researchers and academic institutions, reducing costs to under ₹100 per GPU hour, compared to the global average of $2.5-3 (approximately ₹200-240). The average cost for compute power currently stands at ₹115.85 per GPU hour.

These efforts are part of the broader IndiaAI mission focused on critical areas such as agriculture, climate change, and learning disabilities, aiming to leverage AI for social impact and technological self-reliance.

The Road Ahead: What Investors Need to Watch

For investors, DeepSeek’s emergence means AI bets aren’t just about NVIDIA and OpenAI anymore. Chinese firms are proving they can challenge incumbents, which means rethinking AI portfolios to account for new players from Asia. Here are key factors to watch:

1. IT and AI Stocks: 

DeepSeek’s low-cost AI model may present challenges and opportunities for Indian IT firms like Infosys, TCS, and HCL Tech. While there could be short-term pressures as companies adapt to increased competition from cheaper alternatives, the potential for cost optimisation in AI development could benefit these firms in the long run. 

2. Geopolitical Impact:

India’s reliance on China’s technology supplies poses risks. Be aware of how geopolitical tensions could disrupt supply chains and impact market stability.

3. Semiconductor & Hardware Players:

NVIDIA’s turmoil raises questions about semiconductor stocks. If AI shifts towards efficiency over brute computing power, semiconductor stocks in India could see volatility.

4. Innovation Potential

The disruption could spur innovation within India’s tech landscape, encouraging companies to develop cost-effective AI solutions tailored to local needs.

Bottom line: Stay diversified, watch for policy shifts, and track India’s AI roadmap for emerging investment themes.

To Wrap Up

DeepSeek’s rise isn’t just a tech story—it’s a financial, geopolitical, and economic twist in the world going forward. For the US, it’s a moment of reckoning. For China, it’s a statement of intent. And for India, it’s an opportunity to define its own AI destiny. Thus, the fundamental question remains: What is China doing right (or wrong), and what is India missing in building such AI models? Let’s wait and watch.