SINGAPORE - The emergence of a low-cost Chinese artificial intelligence (AI) model sparked a global market rout on Jan 28 as investors questioned the sky-high valuations of AI bellwethers, with US President Donald Trump saying it was a “wake-up call” for Silicon Valley.

The increasing popularity of DeepSeek spurred investors to dump tech stocks globally, with ripples spreading beyond the US markets to Tokyo, Amsterdam and even Singapore.

It all stemmed from a free AI assistant launched by Chinese start-up DeepSeek last week that the firm said uses less data at a fraction of the cost of services available currently, garnering significant attention worldwide, including from OpenAI chief executive officer Sam Altman, who called it an “impressive model”.

The release initially received limited attention, overshadowed by the inauguration of Mr Trump on the same day.

However, over the weekend, the Chinese chatbot surged to become the most downloaded free app on Apple’s US App Store, displacing OpenAI’s ChatGPT.

Shares of Nvidia, the poster child of the current AI boom, sank 17 per cent on Jan 27 and wiped US$593 billion (S$800 billion) off the chipmaker’s market value. This marks a record one-day loss of any US-listed company.

Broadcom finished down 17.4 per cent in the US, with ChatGPT backer Microsoft falling 2.1 per cent and Google parent Alphabet ending down 4.2 per cent.

Overall, the Nasdaq was down 3 per cent on Jan 27, the equivalent of a US$1 trillion haircut.

“What makes (the) tech selloff so jarring is that the valuations of many of these AI and tech companies offer no margin of error,” said Mr David Bahnsen, chief investment officer at The Bahnsen Group.

“The excessive weighting these tech stocks have in many investor portfolios and the high concentration these tech stocks have in the market indexes were a significant and under-appreciated risk issue.”

Most Asian shares also fell, with the MSCI Asia Pacific Index slipping as much as 0.6 per cent, with Japan’s largest technology firms among the biggest losers. Japanese chip-testing equipment maker Advantest, a supplier to Nvidia, lost 10 per cent on Jan 28 while chip-making equipment maker Tokyo Electron fell 5.3 per cent.

The hype around AI has powered a huge flow of capital into equities in the last 18 months, inflating valuations and lifting stock markets to record highs.

It was not just the chipmakers and tech companies taking a hit but also companies focused on data centres, with Malaysia’s utility conglomerate YTL Power down 7.5 per cent on Jan 28, its third session of steep losses.

In Singapore, data centre-related real estate investment trusts (Reits) saw losses on Jan 27, although most had recovered slightly on Jan 28. These include Keppel DC Reit, Digicore Reit and Mapletree Industrial Trust.

Mr Yeap Jun Rong, market strategist at IG in Singapore, said there may be some “sell first, think later” thinking at play, with opinions divided on whether DeepSeek will eventually be the so-called game changer that reshapes the US AI landscape.

“But if anything, market participants dislike uncertainties and are clearly unwilling to take the risks in the near term.”

Little is known about the Hangzhou start-up behind DeepSeek, whose controlling shareholder is Mr Liang Wenfeng, co-founder of quantitative hedge fund High-Flyer, records showed.

Its researchers wrote in a paper in December that the DeepSeek-V3 model, launched on Jan 10, used Nvidia’s lower-capability H800 chips for training, at a cost of less than US$6 million.

Analysts estimate that big US cloud companies will spend US$250 billion this year on AI infrastructure.

Mr Charu Chanana, chief investment strategist at Saxo, said the development serves as a reminder that competition in the global AI arena is intensifying and Nvidia may not be in pole position forever.

“By developing cutting-edge AI models with less advanced and more cost-efficient hardware, DeepSeek challenges the heavy investments US tech companies are pouring into high-cost AI infrastructure,” he said.

Some AI experts applauded DeepSeek’s strong team and up-to-date research but remained unfazed, said people familiar with the thinking at four of the leading AI labs, who declined to be identified. China has now leapfrogged from 18 months to six months behind state-of-the-art AI models developed in the US, one person said. Yet with DeepSeek’s free release strategy drumming up such excitement, the firm may soon find itself without enough chips to meet demand, this person predicted.

Software maker Snowflake decided on Jan 27 to add DeepSeek models to its AI model marketplace after receiving a flurry of customer inquiries.

With employees calling DeepSeek’s models “amazing”, the US software seller weighed the potential risks of hosting AI technology developed in China before ultimately deciding to offer it to clients, said Mr Christian Kleinerman, Snowflake’s executive vice-president of product.

Some American AI leaders lauded DeepSeek’s decision to launch its models as open source, which means other companies or individuals are free to use or change them.

“DeepSeek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen – and as open source, a profound gift to the world,” venture capitalist Marc Andreessen said in a post on X on Jan 26.

The acclaim garnered by DeepSeek’s models underscores the viability of open-source AI technology as an alternative to costly and tightly controlled technology such as OpenAI’s ChatGPT, industry watchers said.

Several investors said that DeepSeek’s success would galvanise US start-ups. “Competition that makes everyone better,” said Pelion Venture Partners partner Tyler Hogge. While he said he was concerned about the role the Chinese government may have in the company, he believes the technology will mean “there are many more businesses that can be built because of lower costs”.

Besides a rallying cry, DeepSeek also offers a warning to US tech companies, said Mr Venky Ganesan, a partner at Menlo Ventures. 

“It’s a true wake-up call for the US in terms of the race to win AI,” said Mr Ganesan, whose firm has invested in AI start-up Anthropic. He compared the advance to the Russian satellite that spurred the US to race ahead with its space programme.

“DeepSeek is the Sputnik moment for AI,” he added. REUTERS, THE BUSINESS TIMES, BLOOMBERG

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