MORE than a trillion dollars were wiped off some of the world’s biggest tech firms yesterday after markets were blindsided by a cheap Chinese AI start-up.
Tech investors have been panicked after a small Chinese firm called Deepseek launched an AI model that rivals OpenAI’S ChatGPT and claimed it had been developed at a fraction of the cost.
The shock development by a business which few had heard of has raised questions about the dominance of US tech titans Nvidia, Microsoft, Meta and Google Parent Alphabet.
Marc Andreessen, a Silicon Valley venture capitalist and now an adviser to US President Donald Trump, said that DeepSeek’s model was AI’s “Sputnik moment”.
The comment refers to the space race during the height of the Cold War when the Soviet Union stunned Western nations by successfully launching a satellite into outer space.
Analysts said the gains of DeepSeek, founded by Liang Wenfeng shows China is not as far behind on AI tech advancements as was previously thought.
Nvidia, which last year was briefly the world’s most valuable company, shed more than $600billion in value yesterday, down by as much as 17.8 per cent.
Investors also started betting against Nvidia as DeepSeek’s new model shows what can be achieved on its cheaper, older chips.
The Dutch chip maker ASML Holding shed 6.5 per cent as the impact was also felt in Europe.
Meanwhile Microsoft, which has committed to spending $80billion this year on AI data centres and has a $13billion stake in OpenAI, fell by 3.83 per cent.
Microsoft’s chief executive Satya Nadella claimed optimistically in a post on X: “As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.”
The entire US Nasdaq stock index — the listing of choice for tech companies — slid heavily by 3.15 per cent to 19,328.48.
Charu Chanana, from Saxo Bank, said: “Even if DeepSeek does not maintain its current level of popularity, this development serves as a reminder that competition in the global AI arena is intensifying — and Nvidia may not be in the pole position forever.”
The rapid catch-up by DeepSeek in the race to develop AI is particularly important as it shows that Chinese firms have already innovated at a faster rate to make up for US export controls placed on Nvidia’s most powerful AI chips to China.
Ben Barringer, from money experts Quilter Cheviot, said: “It also provides a wake-up call and is somewhat of a question mark on how much needs to be spent in order to build a model.”
Q&A ON DEEPSEEK R1 CHATBOT
Q: What has caused the tech shockwaves?
A: A Chinese start-up, which is just over a year old, has launched DeepSeek R1 — an AI software chatbot or large language model (LLM).
It can be downloaded as an app or used on a computer desktop and responds to users’ questions.
It is free, which has partly helped push it to the top of the US download charts, whereas OpenAI costs $20 for access.
Q: Who is behind DeepSeek?
A: A top Chinese hedge fund manager called Liang Wenfeng — who in 2021 bought thousands of Nvidia AI computer chips.
He originally used AI to spot patterns in share prices to make a fortune for his fund, High-Flyer, which has around $8billion (£6.4billion) of assets.
Wengfeng has since been recruiting tech talent solely for making cheap AI models.
Q: What’s the big deal?
A: DeepSeek claims it has developed its AI model for just $5.6million (£4.5million) — a tenth of what Meta spent on its most recent system and a fraction of the billions of investment pumped in by Western rivals such as OpenAI.
Q: What does this mean?
A: It shows Chinese firms have been able to innovate even more efficiently than Western rivals, despite US restrictions on exports of powerful Nvidia chips to China.
It also shows it is possible to develop AI models cheaply.
And it risks bursting the bubble for the tech giants which have raised billions from investors.
FRIED chicken chain Popeyes is planning to open 45 new restaurants in the UK, creating 2,500 new jobs.
The business says the drive-thru sites, restaurants and delivery kitchens will help grow its sales from £118million to £200million this year.
LESS FLYIN’ RYAN
RYANAIR has said it will not be able to fly as many passengers as hoped this year while it waits for delayed planes from Boeing.
The cut-price carrier said it now expects to carry 206million travellers over the year, down from the 210million previously forecast.
It had already cut the guidance from 215million to 210million in November over the issue.
Boss Michael O’Leary said he would reallocate “scarce capacity growth” to regions that are “cutting or abolishing aviation taxes”.
CANCER VACCINE
DRUG giant GSK and the University of Oxford have formed a tie-up to create a new cancer vaccine.
The £50million three-year partnership intends to create a jab which can target cells at the pre-cancerous stage.
Prof Sarah Blagden, from the University of Oxford, said: “Cancers can take up to 20 years to develop.
The purpose of the vaccine is not to vaccinate against established cancer, but to actually vaccinate against that pre-cancer stage.”
GSK’s shares rose by 3.35 per cent to £14.02 on the news.
HMV EYES WH SMITH SHOP BID
THE owner of HMV is considering a swoop on WH Smith’s unwanted 500 high street stores, The Sun can reveal.
WH Smith’s advisers at Greenhill, investment boutique have been in talks with Doug Putman, the Canadian entrepreneur who rescued HMV from bankruptcy in 2019.
WH Smith has confirmed that it is considering offloading its entire high street estate in order to focus on its fast- growing travel division, which includes shops in train stations and airports around the world.
It is hoped that a deal can be reached within three months, according to sources.
Mr Putman will have to fend off competition from other bidders, including restructuring firms Alteri and Hilco. Modella Capital, which recently bought Paperchase and Jigsaw, has also been linked to a purchase by Sky News.
Last October, Mr Putman told The Sun that he would “love to buy more businesses in the UK”, after previous failed moves to buy bust retailers Ted Baker and Wilko
Analysts at AJ Bell also suggested that The Range’s owner could also be “a name to watch” as it is one of the few “retailers hungry for more, having last year bought the Homebase brand and 70 stores”.
Shares in WH Smith rose by 1.05 per cent to £11.60 in afternoon trading, valuing the company at £1.5billion.
Russ Mould at AJ Bell said: “The travel arm’s where most of the profits are made.
“It makes sense to sharpen the focus on what a company does best by offloading less important interests such as the high street.”