Why DeepSeek is a Nothingburger for AI Chipmakers

When DeepSeek, based in China, said that it spent only $6 million to develop its chatbot, U.S. stocks in the artificial intelligence segment lost $1 trillion in market value. Nvidia (NVDA) led the decline and created a record loss by market capitalization.DeepSeek’s low expense suggests that Microsoft (MSFT), Alphabet (GOOG), and Meta Platforms (META) overspent on servers that power their AI. Conversely, Apple (AAPL) has no in-house AI platform.DeepSeek’s low-cost claim is questionable. It will take months for experts to validate the firm’s effort. Still, when the dust settled, U.S. media outlets cited new reports that estimated DeepSeek spent up to $500 million.Even if the new AI firm exaggerated its minimal expenses, big investors are doubling down on U.S. technology. Softbank (SFTBY) entered talks with OpenAI to invest up to $25 billion. That would value ChatGPT at $300 billion.Nvidia (NVDA) PeakedNvidia has a moat in selling the tools needed to train AI models. However, since last November 2024, Nvidia shares struggled to break out above $150. Buying momentum faded. The DeepSeek threat, combined with stock buying exhaustion, led to NVDA stock losing 15.81% last week.Advanced Micro Devices (AMD) lost 5.61% and has higher risks than that of NVDA stock. The downtrend started in mid-October 2024 and shows no signs of easing.Although DeepSeek’s threat to AI chip spending is questionable, bullish traders should decrease their exposure to AI stocks. The Chinese firm may introduce more innovations achieved at low costs that would shake up the AI markets.